Super Micro (SMCI)

Server solutions provider Super Micro (NASDAQ:SMCI) missed Wall Street’s revenue expectations in Q3 CY2025, with sales falling 15.5% year on year to $5.02 billion. On the other hand, next quarter’s outlook exceeded expectations with revenue guided to $10.5 billion at the midpoint, or 31.5% above analysts’ estimates. Its non-GAAP profit of $0.35 per share was 10.1% below analysts’ consensus estimates.

Company Overview

Founded in Silicon Valley in 1993 and known for its modular "building block" approach to server design, Super Micro Computer (NASDAQ:SMCI) designs and manufactures high-performance, energy-efficient server and storage systems for data centers, cloud computing, AI, and edge computing applications.

The Hardware & Infrastructure sector will be buoyed by demand related to AI adoption, cloud computing expansion, and the need for more efficient data storage and processing solutions. Companies with tech offerings such as servers, switches, and storage solutions are well-positioned in our new hybrid working and IT world. On the other hand, headwinds include ongoing supply chain disruptions, rising component costs, and intensifying competition from cloud-native and hyperscale providers reducing reliance on traditional hardware. Additionally, regulatory scrutiny over data sovereignty, cybersecurity standards, and environmental sustainability in hardware manufacturing could increase compliance costs.

Super Micro Computer competes with major server and data center hardware providers including Dell Technologies (NYSE:DELL), Hewlett Packard Enterprise (NYSE:HPE), Lenovo Group (OTC:LNVGY), and Inspur (OTC:ISPNF). In the specialized high-performance computing and AI server market, it also faces competition from NVIDIA (NASDAQ:NVDA) with its DGX systems.

A company’s long-term sales performance can indicate its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years.

With $21.05 billion in revenue over the past 12 months, Super Micro is a behemoth in the business services sector and benefits from economies of scale, giving it an edge in distribution. This also enables it to gain more leverage on its fixed costs than smaller competitors and the flexibility to offer lower prices.

As you can see below, Super Micro grew its sales at an incredible 44.8% compounded annual growth rate over the last five years. This is a great starting point for our analysis because it shows Super Micro’s demand was higher than many business services companies.

We at StockStory place the most emphasis on long-term growth, but within business services, a half-decade historical view may miss recent innovations or disruptive industry trends. Super Micro’s annualized revenue growth of 68.8% over the last two years is above its five-year trend, suggesting its demand was strong and recently accelerated.

This quarter, Super Micro missed Wall Street’s estimates and reported a rather uninspiring 15.5% year-on-year revenue decline, generating $5.02 billion of revenue. Company management is currently guiding for a 84.9% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 71% over the next 12 months, an improvement versus the last two years. This projection is eye-popping for a company of its scale and suggests its newer products and services will fuel better top-line performance.

Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

Super Micro was profitable over the last five years but held back by its large cost base. Its average operating margin of 6.7% was weak for a business services business.

On the plus side, Super Micro’s operating margin rose by 1.2 percentage points over the last five years, as its sales growth gave it operating leverage.

In Q3, Super Micro generated an operating margin profit margin of 3.6%, down 4.9 percentage points year on year. This contraction shows it was less efficient because its expenses increased relative to its revenue.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Sadly for Super Micro, its EPS declined by 8.7% annually over the last five years while its revenue grew by 44.8%. However, its operating margin actually improved during this time, telling us that non-fundamental factors such as interest expenses and taxes affected its ultimate earnings.

Diving into the nuances of Super Micro’s earnings can give us a better understanding of its performance. A five-year view shows Super Micro has diluted its shareholders, growing its share count by 21.9%. This dilution overshadowed its increased operational efficiency and has led to lower per share earnings. Taxes and interest expenses can also affect EPS but don’t tell us as much about a company’s fundamentals.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For Super Micro, its two-year annual EPS declines of 62.4% show it’s continued to underperform. These results were bad no matter how you slice the data, but given it was successful in other measures of financial health, we’re hopeful Super Micro can generate earnings growth in the future.

In Q3, Super Micro reported adjusted EPS of $0.35, down from $0.74 in the same quarter last year. This print missed analysts’ estimates. Over the next 12 months, Wall Street expects Super Micro’s full-year EPS of $1.67 to grow 75.8%.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Super Micro’s demanding reinvestments have drained its resources over the last five years, putting it in a pinch and limiting its ability to return capital to investors. Its free cash flow margin averaged negative 3.4%, meaning it lit $3.38 of cash on fire for every $100 in revenue.

Taking a step back, an encouraging sign is that Super Micro’s margin expanded by 6 percentage points during that time. The company’s improvement shows it’s heading in the right direction, and continued increases could help it achieve long-term cash profitability.

Super Micro burned through $949.8 million of cash in Q3, equivalent to a negative 18.9% margin. The company’s cash flow turned negative after being positive in the same quarter last year, but we wouldn’t read too much into the short term because investment needs can be seasonal, causing temporary swings. Long-term trends carry greater meaning.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Super Micro’s five-year average ROIC was 22.7%, beating other business services companies by a wide margin. This illustrates its management team’s ability to invest in attractive growth opportunities and produce tangible results for shareholders.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, Super Micro’s ROIC averaged 1.3 percentage point increases each year. This is a great sign when paired with its already strong returns. It could suggest its competitive advantage or profitable growth opportunities are expanding.

Super Micro reported $4.20 billion of cash and $4.78 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $1.37 billion of EBITDA over the last 12 months, we view Super Micro’s 0.4× net-debt-to-EBITDA ratio as safe. We also see its $8.03 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We were impressed by Super Micro’s optimistic revenue guidance for next quarter, which blew past analysts’ expectations. On the other hand, its revenue and EPS missed significantly. Overall, this quarter could have been better. The stock traded down 5.8% to $44.74 immediately after reporting.

Updated: December 3, 2025 at 10:49 PM EST

Before investing in or passing on Super Micro, we urge you to understand the company’s business quality (or lack thereof), valuation, and the latest quarterly results - in that order.

Super Micro is a high-quality business worth owning. To begin with, its revenue growth was exceptional over the last five years, and its growth over the next 12 months is expected to accelerate. And while its declining EPS over the last five years makes it a less attractive asset to the public markets, its scale makes it a trusted partner with negotiating leverage. On top of that, Super Micro’s rising cash profitability gives it more optionality.

Super Micro’s P/E ratio based on the next 12 months is 14.2x. Analyzing the business services landscape today, Super Micro’s positive attributes shine bright. We like the stock at this price.

Wall Street analysts have a consensus one-year price target of $48.53 on the company (compared to the current share price of $33.63), implying they see 44.3% upside in buying Super Micro in the short term.