SMCI: Fundamentals Should Be Approached With Caution

Analyst: Star Z

Some background information about SMCI

Before the end of the year, SMCI had been an enhanced version of NVDA's Alpha, with SMCI's stock price increasing more than tenfold. The main drivers included:

• SMCI's continuous increase in market share for AI servers.

• AI server prices significantly higher than non-AI servers.

• Rush fees for H100 leading to excess profits.

These factors resulted in accelerated revenue growth, rapid margin improvement, and a PE valuation increase from 10x to over 30x. In the report below, we will carefully explain how the above tailwinds will turn into headwinds from now on.

After the beginning of August, SMCI's stock price trend began to diverge from NVDA's. On August 7th, SMCI released its quarterly results, and although revenue exceeded expectations, the gross margin was significantly lower than expected by 3%. The market began to speculate about the impact of intensifying competition on server manufacturers' gross margins and used SMCI and other server manufacturers as short targets to hedge against NVDA's stock price movement.