SMCI Plunges 45% in 3 Months: Time to Buy, Sell or Hold the Stock?

Super Micro Computer SMCI shares have plunged 44.9% in the past three months, underperforming the Zacks Computer- Storage Devices industry and the Zacks Computer and Technology sector’s appreciation of 25.4% and 4.5%, respectively.

SMCI Three-Month Performance Chart

This decline in the share price has caused SMCI stock to trade at a forward price-to-earnings (P/E) ratio of 14.03, well below the Zacks Computer–Storage Devices industry average of 20.86, indicating that the stock appears undervalued at current levels. The Zacks Value Score of B suggests that SMCI stock is indeed undervalued.

SMCI Forward 12-Month (P/E) Valuation Chart

Given this underperformance, investors may question whether SMCI’s stock price could decline further or whether the current valuation presents an attractive buying opportunity. Let’s dive deeper into SMCI’s fundamentals to unravel the true value of the stock.

SMCI Navigates Temporary Headwinds Amid Expansion Efforts

The constant decline in SMCI’s share price throughout the past three months can be partially attributed to investors’ growing concern as SMCI’s gross margins have been contracting for the past nine quarters. For fiscal 2024 and 2025, SMCI attributed the decline in gross margins to its strategy of offering competitive pricing to gain market share, intensifying competition, changes in product and customer mix, and higher manufacturing-related expenses.

Other problems faced by the company include SMCI’s customer concentration, and new deals with larger customers have squeezed its margin, as it needs to retain these customers. These mega deals have resulted in higher receivables, resulting in negative free cash flow of $950 million for the first quarter of fiscal 2026.

Super Micro Computer’s working capital problem further stems from the massive operational scale-up required to meet unprecedented AI rack demand. SMCI plans to roll out 6,000 racks/month, including 3,000 liquid-cooled racks and expand new facilities in Taiwan, the Netherlands, Malaysia, and the Middle East.

SMCI’s rapid expansion is causing inventory accumulation. SMCI’s first-quarter fiscal 2026 closing inventory was $5.7 billion, up from $4.7 billion in the previous quarter. This situation has spiked its cash conversion cycle from 96 days to 123 days.

In the first quarter of fiscal 2026, SMCI’s revenues and earnings declined 15.5% and 56%, respectively. This decline was mainly due to a revenue shift from the September quarter to the December quarter due to last-minute configuration upgrades requested by customers. Looking ahead, the Zacks Consensus Estimate for SMCI’s fiscal 2026 earnings has been revised downward by a penny in the past 30 days.

However, not everything is gloom and doom for SMCI. The company is positioning its business to gain from the AI wave.

SMCI’s Server Products Give it a Unique Advantage

Super Micro Computer’s high-performance and energy-efficient servers are gaining traction among AI data centers, HPC and hyperscalers. Partnerships with vendors like NVIDIA and Advanced Micro Devices position Super Micro Computer to deliver the latest GPU-powered platforms, which remain in high demand among cloud providers and sovereign AI projects. Expansion in Europe, Asia and the Middle East offers additional growth avenues.

SMCI’s Data Center Building Block Solutions (DCBBS) solution is experiencing rapid growth in demand for its advanced AI compute and data center solutions, especially powered by NVIDIA’s Blackwell Ultra (GB300) and AMD MI350/355X platforms. On its first-quarter fiscal 2026 earnings call, SMCI reported that DCBBS is expected to carry more than 20% margins and become a major long-term profit contributor in its business.

Now the company is planning to enter Client, Edge and Consumer AI Markets, coming in cross roads with existing players like HP Inc. HPQ, Dell Technologies DELL and Lenovo LNVGY. SMCI has unveiled a broad AI portfolio spanning Super AI Station, Supermicro SYS-542T-2R, Supermicro AI PC, Supermicro Edge AI Systems and Supermicro's Fanless Compact Edge System, leveraging its AI-optimized server and energy-efficient system design.

HP has a range of AI-based computing devices, like HP’s OmniBook and EliteBook series, which offer multiple Next-Generation AI PC solutions. Dell has numerous workstations that offer AI capabilities. Dell’s workstations are XPS 13, Inspiron 14 Plus, Inspiron 14, Latitude 7455 and Latitude 5455. Lenovo has AI PCs in some versions of ThinkPad, Yoga, IdeaPad, and Lenovo Legion.

SMCI has launched edge systems on display with an integrated NVIDIA Jetson Orin NX AI computer. They are SYS-112D-42C-FN8P and ARS-E103-JONX. SMCI has introduced DLC-2, which lowers power and water consumption by up to 40%, operates at significantly reduced noise levels of approximately 50 decibels, and reduces the total cost of ownership by 20%. With all these products in line, SMCI aims for $36 billion in fiscal 2026 revenues.

Conclusion: Hold SMCI Stock Now

Super Micro Computer is facing several near-term challenges while pursuing long-term growth across server, storage and cooling products. The company is entering Client, Edge and Consumer AI Markets, expanding its TAM. Considering these factors, we suggest investors retain this Zacks Rank #3 (Hold) stock for now. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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