SMCI Climbs 34.1% YTD: Should You Hold or Fold the Stock?
Super Micro Computer SMCI shares have been volatile recently, yet it returned 34.1% in the year-to-date period. Its shares have outperformed the Zacks Computer- Storage Devices industry's decline of 0.3% in the same time frame.
Super Micro Computer is currently trading at a discounted valuation, with its forward 12-month price-to-earnings (P/E) ratio at 14.6X, which is lower than the Zacks Computer – Storage Devices industry average of 26.82X.
With such a strong performance and discounted valuation, investors are left wondering — should they hold on to SMCI stock, or is caution the wiser path?
Traction in Server Demand is Boosting SMCI
Super Micro Computer is experiencing strong traction in its high-performance and energy-efficient servers as AI data centers and hyperscalers are strongly adopting them. The server and storage system segmental revenues surged 19% year over year in the third quarter of fiscal 2025, and it crossed the $4.5 billion mark, accounting for 97% of its top line.
Super Micro Computer's server and storage revenues are being driven by its direct liquid cooling (DLC) solutions for data-center usage. The DLC production reached a manufacturing volume of more than 2000 DLC racks per month. Super Micro Computer is further enhancing its portfolio with Data Center Building Block Solutions, petascale storage systems for AI workloads, and kit-integration of NVIDIA Blackwell GPUs in its product line to achieve high compute power. These will keep it at the forefront of the server and storage space.
As a growing number of enterprises are adopting AI, SMCI's enterprise data center customer vertical recorded $1.9 billion in revenues. This vertical accounted for 42% of revenues in the third quarter of fiscal 2025 compared to 25% in the previous quarter. This reflects the growing representation of AI products in SMCI's product sales.
SMCI is also broadening the reach of its server and storage solutions through global manufacturing expansion across Malaysia, Taiwan and Europe to ramp up the deployment of these solutions while mitigating geopolitical and tariff barriers of local governments. However, SMCI is also facing some challenges.
Key Challenges Faced by SMCI
Super Micro Computer is facing some near-term headwinds like delayed purchasing decisions from customers as they are evaluating the adoption of next-generation AI platforms.
Strong competition from the global storage and server market by leading players like Pure Storage PSTG, Dell Technologies DELL and Hewlett Packard Enterprise HPE is also a concern for investors. Pure Storage provides a range of modern storage solutions through its offerings like FlashArray, FlashBlade and Pure Cloud Block Store to serve the purpose of providing All-Flash performance, cloud integration, AI and simplified management.
Dell Technologies is also experiencing massive traction in its AI-optimized servers, which grew 16% year over year. In the first quarter of 2026, DELL announced that it received orders worth $12.1 billion for its AI servers, which has surmounted to become $14.4 billion in AI backlogs. Hewlett Packard Enterprise offers a range of server services, including HPE ProLiant, HPE Synergy, HPE BladeSystem and HPE Moonshot servers. 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.
Due to these factors, SMCI is facing margin contraction due to the growing price competition from established competitors. Furthermore, price adjustments from its clients as they are second-guessing their shift from older to newer platforms like Blackwell are also weighing on the SMCI's margins. In the last reported quarter, Super Micro Computer also incurred a one-time inventory write-down on older-generation GPUs and related components, further affecting its margins.
The Zacks Consensus Estimate for SMCI's fiscal 2025 earnings implies a year-over-year decline of 6.33%. The estimates for fiscal 2025 have been revised downward in the past 30 days.
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, PSTG 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.
Zacks Names #1 Semiconductor Stock
It's only 1/9,000th the size of NVIDIA which skyrocketed more than +800% since we recommended it. NVIDIA is still strong, but our new top chip stock has much more room to boom.
With strong earnings growth and an expanding customer base, it's positioned to feed the rampant demand for Artificial Intelligence, Machine Learning, and Internet of Things. Global semiconductor manufacturing is projected to explode from $452 billion in 2021 to $803 billion by 2028.
See This Stock Now for Free >>
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
Dell Technologies Inc. (DELL): Free Stock Analysis Report
Super Micro Computer, Inc. (SMCI): Free Stock Analysis Report
Hewlett Packard Enterprise Company (HPE): Free Stock Analysis Report
Pure Storage, Inc. (PSTG): Free Stock Analysis Report
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
CTV News
33 minutes ago
- CTV News
Gas prices expected to drop by five cents on Wednesday morning
Video The price for a litre of regular gas is expected to drop by five cents on Wednesday, with the cost of diesel to drop by between six and eight cents.
CTV News
33 minutes ago
- CTV News
B.C. economy will get a kick out of hosting FIFA World Cup games, government says
Workers clear the turf at B.C. Place during a FIFA World Cup 2026 update in Vancouver, Tuesday, April 30, 2024. THE CANADIAN PRESS/Ethan Cairns There is less than a year to go before Vancouver is on the global stage hosting seven FIFA World Cup soccer games, and leaders are promoting the economic benefits of spending hundreds of millions of dollars on the international showcase. A joint statement from B.C. Tourism Minister Spencer Chandra Herbert and Vancouver Mayor Ken Sim says one million additional out-of-province visitors are expected between 2026 and 2031, generating more than $1 billion in spending. The statement says more than 18,000 jobs could be generated in that same period. It says FIFA predicts that preparing for and hosting the tournament could contribute $1.7 billion in economic benefits for B.C., including a $980-million increase in gross domestic product and $610 million in 'labour income.' Sim says the city's direct costs of hosting seven games 'remain on track' after the budget ballooned in 2024. Last year, organizers announced the estimated cost of hosting the event more than doubled to between $483 million and $581 million, including costs for the city, the province and stadium upgrades. The province estimates the net core provincial cost of hosting remains similar to earlier predictions, in the range of $85 million to $145 million. Royce Chwin, president of Destination Vancouver, says in the statement that hosting the games will have lasting benefits. 'FIFA World Cup 26 is more than a series of matches. It's a catalyst for economic activity, international visibility, and community pride. Hosting seven games will energize our downtown core, including hotels, restaurants, venues, and surrounding neighbourhoods,' he said. This report by The Canadian Press was first published June 24, 2025.
CTV News
33 minutes ago
- CTV News
Manitoba government hires former reporter to lead trade office in Washington, D.C.
The flag of Manitoba flies on Monday, November 1, 2021 in Ottawa. THE CANADIAN PRESS/Adrian Wyld WINNIPEG — The Manitoba government has hired a former journalist to lead a trade office in Washington, D.C. Richard Madan, who has worked in the United States capital for a decade as a reporter for Canadian television networks, is tasked with promoting Manitoba's interests in trade negotiations. Madan doesn't have a trade background, but says he has connections in Washington and can offer skills in building and maintaining relationships. The government has not disclosed how much Madan will be paid over his two-year contract. The NDP government's spring budget designated $800,000 for the trade office, which includes money for office space and administrative support. Madan recently left the CBC and says he welcomes the chance to serve Manitoba, where he started his journalism career, by building connections. 'I've been in D.C. for almost a decade, so I do have a fairly good Rolodex and I do know how to stick handle my way through Capitol Hill,' Madan said Tuesday. 'I'm not signing trade deals, I'm not negotiating. That is not what I'm doing. My goal is to be a facilitator, set up these meetings, identify where Manitoba can make inroads.' This report by The Canadian Press was first published June 24, 2025 Steve Lambert, The Canadian Press
