Super Micro Computer (SMCI) Stock: Margin Pressure Forces Goldman to Slash Target

TLDR

• Goldman Sachs cuts SMCI price target to $26 from $34 while maintaining Sell rating
• Gross margins expected to fall to 7.5% in 2026 from over 15% in 2022
• AI server margins stuck in single digits, half the rate of traditional servers
• Stock dropped 6.8% to $28.06 after missing earnings estimates
• Analyst price targets range from $15 to $63, showing extreme disagreement

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Super Micro Computer took a beating Tuesday as Goldman Sachs delivered a harsh reality check. The investment bank slashed its price target to $26 from $34 while keeping its Sell rating intact.

Super Micro Computer, Inc., SMCI

Shares fell 6.8% to $28.06 on the news. The stock has now plunged more than 75% from its March 2024 peak of $118.81.

Goldman’s concern is straightforward: margins are collapsing. The company’s gross margin is projected to hit just 7.5% in 2026. That’s down from over 15% in 2022.

AI servers are the problem. These products carry single-digit margins, roughly half what traditional servers deliver. For a company betting its future on AI infrastructure, that’s a tough pill to swallow.

Squeezed from All Sides

Super Micro faces pressure from multiple directions. Suppliers are charging more for components, especially memory. Large customers wield strong negotiating power. Competition between vendors is intensifying.

The shift to standardized designs isn’t helping either. Nvidia’s reference designs are turning AI servers into commodity products.

The company recently posted disappointing quarterly results. Earnings per share came in at $0.35, missing the $0.46 estimate. Revenue hit $5.02 billion, down 15.5% year-over-year and far below the $6.48 billion analysts expected.

Management guided Q2 fiscal 2026 EPS between $0.46 and $0.54. They still project 64% revenue growth for the full fiscal year.

The Revenue Growth Paradox

Here’s what makes this situation unusual. Goldman actually thinks Super Micro will beat revenue estimates through 2028. The company dominates the neocloud market, supplying AI servers to rapidly growing data center operators like IREN and CoreWeave.

These neoclouds have contracts with cash-rich hyperscalers like Microsoft. That provides a stable foundation for growth.

But revenue growth means little if margins stay in the basement. Goldman sees no clear path back to double-digit margins anytime soon.

Super Micro is trying to expand into enterprise and sovereign customers through its Data Center Building Blocks platform. The problem? This requires decades of support infrastructure that competitors like Dell already have.

Wall Street Can’t Agree

Analysts are all over the map on SMCI. Nine rate it a Buy, eight say Hold, and two recommend Sell. The consensus price target sits at $47.

Individual targets tell a wilder story. Susquehanna sees $15. Northland Securities predicts $63. That’s a massive spread reflecting deep uncertainty about the company’s future.

Investors are equally divided. More than 17% of shares are sold short, one of the highest rates in the market.

The stock trades at a market cap of $17 billion with a P/E ratio of 22.81. It maintains strong liquidity with a quick ratio of 2.95 and current ratio of 5.39.

Trading volume on Tuesday reached 19.3 million shares, below the 26.1 million average. The 50-day moving average stands at $33.35, while the 200-day average is $43.54.

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