The central theses

• Super Micro Computer shares plunged on Wednesday after the company reported a quarterly profit decline as low margins hurt business despite increased demand.

• According to analysts, investors are waiting for Super Micro’s margins to improve to demonstrate the company’s ability to compete in the highly competitive tech hardware market in the age of artificial intelligence.

• Super Micro also announced a 1:10 stock split, which analysts say could mitigate the stock’s volatility.

Super Micro Computers (SMCI) shares fell 20% on Wednesday after the company reported quarterly earnings late Tuesday that missed analysts’ expectations and announced a 10-for-1 stock split.

Analysts say low margins are weighing on the company’s financial performance, despite increased demand for Super Micro’s technology amid the artificial intelligence (AI) boom.

The company is now a “show-me story” in terms of margins

Super Micro will be “a success story in terms of margin improvement after the difficult margins in the fourth quarter,” wrote analysts at JP Morgan.

Bank of America analysts downgraded their rating on Super Micro stock from “buy” to “neutral,” saying they expect margin issues “over the next few quarters” despite higher revenues as the company “must navigate a competitive pricing environment, delivery delays for Blackwell GPU systems that require liquid-cooled racks (higher margin), and ongoing component availability issues.”

Super Micro said that the “overall impact of the reported delays in Nvidia’s (NVDA) new Blackwell AI chips.

Less concerned about margins, analysts at Rosenblatt Securities remained bullish on Super Micro following its latest earnings report, saying the company is the “Switzerland of AI” because of its ability to offer liquid cooling amid the AI ​​boom. They highlighted the company’s ties to Nvidia’s AI chips, including the highly anticipated Blackwell platform.

Stock split could dampen volatility

The 1:10 share split announced by Super Micro on Tuesday is expected to take effect when trading begins on October 1.

Analysts at JP Morgan said the split would “likely help reduce volatility” as it is expected to diversify the shareholder base.

Super Micro shares closed 20.1% lower at $492.70. The stock is still up 75% year-to-date, but is down nearly 60% from its record high in March.

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