To The Moon

 Earnings Result:

• 4Q2024 (End June Quarter) revenue beat expectations, but earnings missed by 29%.

• Revenue: +143% YoY, $5.31 billion vs. $5.30 billion expected

• Earnings: +78% YoY, $6.25 adjusted vs. $8.07 expected

• SMCI announces a 10-for-1 stock split, similar to Nvidia and Broadcom

 Guidance:

• 1Q 2025 Revenue: $6B to $7B, 183% to 230% YoY growth, beating street expectations of $5.52B

• 1Q 2025 Non-GAAP Earnings: $6.69 to $8.27, midpoint of $7.48 misses expectations of $7.58

• FY25 Revenue: $26.0B to $30.0B, 74% to 101% YoY growth, beating street expectations of $24.2B

Profit Margin:

• Profit margin is one of the key reasons for the falling share price.

• Gross Profit Margin: 11.23% (4Q2024) vs. 15.52% (3Q2024) vs. 17.01% (4Q2023)

• Operating Profit Margin: 6.47% (4Q2024) vs. 9.83% (3Q2024) vs. 10.38% (4Q2023)

• Its gross profit margin and operating profit margin have reduced QoQ and YoY. The declining profit margin is likely due to intensifying competition or Nvidia squeezing its suppliers, including SMCI.

Other Factors:

• SMCI’s $SUPER MICRO COMPUTER INC(SMCI)$ revenue guidance indicates that Nvidia’s Blackwell GPU shipment remains intact

• Market Share: The Server and Storage Systems segment accounts for 95% of total revenue, but SMCI’s market share in this segment is roughly 7.5%, trailing behind Dell (17%) and HPE (10.7%) in 2023. This indicates that the Server and Storage Systems market is fragmented with no clear winner.

• Liquid Cooling: SMCI holds at least 70% to 80% market share.

Conclusion:

• SMCI is probably more suitable as a short-term technical analysis play rather than a long-term fundamental analysis play.

• As a Rack-Scale Total IT Solutions provider, not a chipmaker, SMCI does not deserve a premium valuation similar to other AI chipmakers.

• I consider SMCI a weak pick-and-shovel play in the AI Gold Rush. I prefer ASML, TSMC, Nvidia, Broadcom, ARM, and AMD for exposure to the AI pick-and-shovel play.

• Analyst Consensus: Bloomberg Analysts’ consensus currently shows a 12-month target price of USD 739.33, indicating an upside potential of 50.1% relative to yesterday's closing price of $492.70.

• You may find my previous article on SMCI here.