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Investing.com -- Goldman Sachs downgraded Super Micro Computer (NASDAQ:SMCI) to Sell from Neutral in a note Monday, citing increasing competition in AI servers, margin pressures, and valuation concerns.
The firm lowered its 12-month price target to $32 from $40, reflecting a 9x NTM+1Y EPS multiple, down from 10x previously.
Despite SMCI’s 38% year-to-date stock surge, making it the best-performing stock in Goldman’s Hardware coverage, analysts argue that the risk-reward is now unfavorable.
“With the stock trading at 16x FY2025E P/E, we view risk-reward as unfavorable given downside risks on valuation, competition, and gross margins,” the note stated.
Goldman highlighted three key concerns driving the downgrade. Firstly, they noted intensifying AI server competition.
“Competition in AI servers is intensifying due in part to less product differentiation following R&D investments from competitors in recognition of the large market opportunity, which likely will pressure SMCI’s early market share leadership in AI servers,” wrote Goldman.
They also noted declining gross margins. Goldman expects gross margins to fall in FY2025-2027, citing factors such as the Blackwell product transition, supplier and customer pressure, and increased competition.
The firm’s margin estimates for FY2026 and FY2027 (11.7% and 11.5%) are below consensus (12.2% and 12.6%).
Finally, the bank has valuation concerns. Goldman believes SMCI’s valuation premium relative to peers like Dell (NYSE:DELL) will erode over time.
“We expect SMCI’s valuation premium (12x NTM+1 P/E) to server OEM peers (e.g., DELL at 9x) to converge over time on lack of differentiation in AI server product&risks from customer&supplier concentration,” they stated.
Goldman’s revised EPS estimates for FY2025/26/27 ($2.57/$3.26/$3.70) are below consensus ($2.63/$3.73/$4.71) due to lower revenue expectations and margin headwinds.
