Will SMCI's AI and Liquid Cooling Push Drive Long-Term Growth?

Super Micro Computer‘s SMCI AI infrastructure, including storage and server offerings and direct liquid cooling (DLC) racks, is experiencing strong traction as its customers are benefiting from higher computational densities and lower total cost of ownership for hosting AI services.

Super Micro Computer’s success with its genAI products is evident in high volume shipments of liquid-cooled 4U NVIDIA B200 HGX systems and GB200 NVL72 racks as reported in the third quarter of fiscal 2025. Due to high demand in its AI product line, the company is broadening its portfolio with AMD MI-325X solutions and is planning to launch platforms based on NVIDIA B300, GB300 and AMD MI-350.

In the third quarter of fiscal 2025, Super Micro Computer reported that it had reached the production milestone of 5000 racks per month, out of which it is producing more than 2000 DLC racks per month.

As a rising number of enterprises are adopting AI, SMCI’s enterprise data center customer vertical recorded $1.9 billion in revenues. This vertical contributed to 42% of revenues in the third quarter of fiscal 2025 compared with 25% in the previous quarter. This reflects the growing representation of AI products in SMCI’s topline.

The rising adoption of SMCI’s AI infrastructure and DLC offerings has prompted it to announce a revenue guidance of $21.8-$22.6 billion for fiscal 2025. The Zacks Consensus Estimate for SMCI’s fiscal 2025 revenues is pegged at $22.12 billion, indicating growth of 48% year over year.

How Competitors Fare Against SMCI

Hewlett Packard Enterprise HPE and Dell Technologies DELL are strong competitors in the server space. HPE offers a range of server services, including HPE ProLiant, HPE Synergy, HPE BladeSystem and HPE Moonshot servers.

Recently, Hewlett Packard Enterprise entered the AI infrastructure space with a modular, performance-optimized data center solution (Mod POD) that offers AI and high-performance computing features and supports its Private Cloud AI. In the second quarter of fiscal 2025, Hewlett Packard Enterprise’s server segment sales grew 6% year over year due to strong demand for its AI servers.

Dell 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 give strong competition to SMCI in the AI-server space with HPE Edgeline and Dell XE Series servers.

SMCI’s Price Performance, Valuation and Estimates

Shares of SMCI have gained 33.8% year to date against the Zacks Computer- Storage Devices industry’s decline of 1.6%.

SMCI YTD Price Performance Chart

From a valuation standpoint, SMCI trades at a forward price-to-sales ratio of 0.82X, lower than the industry’s average of 1.65X.

SMCI Forward 12-Month P/S Valuation Chart

The Zacks Consensus Estimate for SMCI’s fiscal 2025 earnings implies a year-over-year decline of 6.33% while the 2026 earnings estimate implies growth of 35.75%. The estimates for fiscal 2025 and 2026 have been revised downward in the past 30 days.

SMCI currently carries a Zacks Rank #4 (Sell).

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

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