The Stock of Super Micro Drops After an Analyst Says to Refrain From Buying Until The Outlook Improves

Shares of Super Micro Computer Inc. fell on Wednesday following a downgrade by Nomura's Donnie Teng, who shifted his stance from bullish to neutral. Teng's revised outlook is based on concerns about the company's order visibility related to its artificial intelligence business.

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Teng downgraded Super Micro's stock to neutral from buy, maintaining his price target at $930. This target suggests only a 5.2% potential upside from the current price levels.

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Despite a 1.3% decline in morning trading, which contrasted with gains in the broader technology sector and the overall stock market, Super Micro's stock remains significantly elevated. It is still 25.6% below its all-time high of $1,188.07 achieved on March 13, but it has surged 211% year-to-date, making it the top performer in the S&P 500. For comparison, Nvidia Corp., the second-best performer, has seen its stock rise by 171.4%.

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Teng highlighted that after a robust rally and positive outlooks in the last two quarters, the stock's potential has shifted from easily surpassing low market expectations to struggling to exceed already high expectations.

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The revised outlook is influenced by uncertainties around the supply of advanced-packaging semiconductor components, which are starting to stabilize. Additionally, there are concerns about the impact of Nvidia’s upcoming Blackwell chip, expected to be available later this year.

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Teng pointed out that Super Micro's liquid-cooling solutions, which are increasingly vital due to the high power consumption of AI workloads, should help the company maintain a competitive edge. However, he cautioned that limited order visibility could hinder Super Micro from delivering stronger-than-expected sales.

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In late April, Super Micro reported fiscal third-quarter sales that fell short of expectations, marking only the second miss in four years. The company is expected to announce its fourth-quarter results in early August.

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In summary, Teng's downgrade reflects caution about Super Micro's near-term prospects despite its impressive year-to-date performance. The company's ability to meet high market expectations remains uncertain due to potential supply chain issues and competitive pressures from new technologies like Nvidia's Blackwell chip.

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