Analysts at Nomura have downgraded their rating on Super Micro Computer (NASDAQ:) stock from Buy to Neutral citing limited share price upside.
In a note on Wednesday, the analysts stated, “After Supermicro’s strong guidance for CY4Q23-CY1Q24, we believe Supermico’s performance potential changed from ‘easy to beat low market expectations’ in CY4Q23 to ‘less room to beat already-high market expectations’.”
Pre-market trading saw SMCI shares drop more than 2% following Nomura’s rating adjustment.
Nomura’s cautious outlook is attributed to uncertainties surrounding the gradual easing of CoWoS-S supply in 2024 and the anticipated transition period between Hopper and Blackwell GPUs in the latter half of the year.
While acknowledging the competitive advantage of Supermicro’s advanced liquid cooling solutions in supporting gross profit margins, the analysts highlighted the challenges posed by limited order visibility due to the aforementioned uncertainties.
Looking ahead, Nomura expects SMCI’s June quarterly sales to align closely with the guidance range of $5.1-$5.5 billion. The delay of some liquid cooling projects to later quarters diminishes the likelihood of surpassing the guidance.
Despite this, the analysts believe that Supermicro’s dominant market position and strong bargaining power have helped maintain gross profit margins, especially with high GPM liquid cooling projects. They also noted a less aggressive pricing strategy from competitors due to lower profitability.
The near- to mid-term outlook for Supermicro remains uncertain due to potential AI server order uncertainties stemming from customer procurement decisions and the GPU transition between Nvidia’s Hopper and Blackwell models.