Is SMCI Stock a Buy, Sell or Hold at a P/E Multiple of 14.62X?

Super Micro Computer, Inc. SMCI is currently trading at a discounted valuation, with its forward 12-month price-to-earnings (P/E) ratio at 14.62X, which is lower than the Zacks Computer – Storage Devices industry average of 18.83X.

Given SMCI’s discounted valuation, investors might be wondering: Is this an opportunity to buy, or are there deeper challenges that could keep the stock in check?

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

Key Challenges Faced by SMCI

While current earnings multiple may make Super Micro Computer appear undervalued relative to its peers, there are underlying risks or negative factors contributing to its lower valuation. SMCI is facing some near-term challenges, including delayed purchasing decisions from customers as they are evaluating the adoption of next-generation AI platforms.

SMCI is also facing margin contraction due to the growing price competition and price adjustments as companies are second-guessing their shift from older to newer platforms like Blackwell. In the last reported quarter, SMCI also incurred a one-time inventory write-down on older-generation GPUs and related components, further affecting its margins.

Based on all the above factors, SMCI revised the revenue guidance for fiscal 2025 from the previously announced range of $23.5-$25.0 billion to $21.8-$22.6 billion. The Zacks Consensus Estimate for SMCI’s 2025 revenues is pegged at $22.12 billion, indicating growth of 48% year over year.

The Zacks Consensus Estimate for fiscal 2025 earnings is pegged at $2.07 per share, indicating a year-over-year decline of 6.3%.

SMCI Faces Stiff Competition in Server Market

Super Micro Computer faces stiff competition from Hewlett Packard Enterprise HPE and Dell Technologies DELL in the infrastructure as a service space. These companies enable organizations with essential building blocks to run their operations by providing server-based solutions.

HPE offers a range of server services, including HPE ProLiant, HPE Synergy, HPE BladeSystem, and HPE Moonshot servers. In the first quarter of fiscal 2025, Hewlett Packard Enterprise’s server segment sales soared 29% year over year due to strong demand for its AI servers.

Dell Technologies also provides a range of server solutions, including Dell PowerEdge Rack Servers, Tower Servers, Modular Infrastructure and PowerEdge C-Series. Hewlett Packard Enterprise and Dell Technologies give strong competition to SMCI in the AI-server space with HPE Edgeline and Dell XE Series servers.

Stock Price Performance of SMCI

Super Micro Computer has underperformed the Zacks Computer – Storage Devices industry in the past month by gaining 7.6%. The Zacks Computer – Storage Devices industry grew 14.3% in the same time frame.

SMCI One Month Price Return Performance Chart

Conclusion: Sell SMCI Stock Now

SMCI is facing near-term challenges stemming from delayed purchasing decisions from customers and margin contraction from pricing pressure. Stiff competition from industry leaders like HPE and DELL in the rising AI-server space is also a concern for the investors.

Considering all these factors, we suggest that investors should stay away from this Zacks Rank #4 (Sell) stock at present.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

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

Zacks Investment Research