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Sunday's Featured Article
Super Micro Surges Over 20% as Margins Soar, Sales Fall ShortAuthor: Leo Miller. Date Posted: 5/7/2026. 
Key Points
- Super Micro Computer has gone on a wild ride in 2026, seeing single-day gains above 20% and falls of over 30%.
- Markets reacted positively to the company's latest earnings, favoring its EPS beat over its sales miss.
- Still, Super Micro faces multiple underlying issues, and Wall Street analysts were not as sanguine as the market.
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Super Micro Computer (NASDAQ: SMCI) just roared back with its latest post-earnings pop. The artificial intelligence (AI) server company jumped more than 24% after reporting. This marks the stock’s second consecutive post-earnings gain, following a 14% rise after its February release.
Despite those big moves, Super Micro shares are only up 16% overall in 2026. That comes as the U.S. government laid out charges against Super Micro co-founder Yih-Shyan “Wally” Liaw, sending SMCI down 33% in a single day in March. Overall, Super Micro showed some positive signs in its latest quarter, but its outlook remains highly uncertain. Here’s what investors need to know. Super Micro Falters on Sales, Storms Past EPS EstimatesIn fiscal Q3 2026, Super Micro posted revenue of $10.24 billion, a massive 123% increase year over year (YOY). (Note that Super Micro’s fiscal reporting period is approximately two quarters ahead of the standard calendar year reporting period.) Although that growth rate is extremely high, it came in well below both market expectations and the company’s own forecast. Super Micro had guided for net revenue of “at least $12.3 billion.” As a result, the company missed guidance by more than $2 billion. It also fell well short of Wall Street expectations, with analysts forecasting sales of $12.39 billion. On the other hand, the company delivered a strong beat on adjusted earnings per share (EPS). Adjusted EPS rose 171% YOY to 84 cents, easily topping estimates of 63 cents and the company’s guidance of “at least 60 cents.” This divergence comes as Super Micro’s gross margin improved dramatically in just one quarter. In Q2 of fiscal 2026 (FY2026), the firm generated $12.68 billion in revenue, but adjusted gross margin fell to 6.4%. That translated into an adjusted gross profit of $812 million. In Q3 FY2026, by contrast, adjusted gross margin surged 370 basis points to 10.1%. Even though revenue was much lower at $10.24 billion, adjusted gross profit rose sharply to $1.03 billion. This was one of the key factors that allowed Super Micro to miss revenue expectations by a wide margin while still exceeding adjusted EPS estimates by a wide margin. Gross Margin Improves, But at the Cost of RevenueSuper Micro’s very low gross margin was a major concern after its previous earnings report. So it makes sense that the market reacted positively to the improvement in its latest results. Still, looking beneath the surface, it’s hard to argue that Super Micro showed a meaningful improvement. Its gross margin gain came alongside a revenue miss of more than $2 billion, with some customers delaying deployments. Had those sales come through, gross margin could easily have been much lower than 10.1%. Super Micro’s guidance offers evidence of that dynamic. The company expects to recover some of the revenue it missed in Q3 next quarter. Using midpoint figures, it sees sales rising to $11.8 billion, but gross margin falling to 8.3%. That suggests the company’s sales and gross margins are moving in opposite directions. While that is not necessarily negative in every case, Super Micro’s already thin gross margin makes it a concern. Companies in a strong position are often able to grow revenue and margins at the same time. That does not appear to be the case for Super Micro. However, the company continues to express confidence in its Data Center Building Blocks Solutions (DCBBS). DCBBS carries higher gross margins, typically above 20%. The company’s goal is to scale DCBBS to more than 20% of net income over the next two years, which would help improve its overall margin profile. Still, Super Micro did not disclose DCBBS’s revenue contribution, making progress toward that goal difficult to assess. Super Micro: Reputational Risk Up, Price Targets DownThe Department of Justice has charged Liaw with allegedly conspiring to sell servers made in the U.S. to China, in violation of export controls. Authorities arrested Liaw, and he resigned from Super Micro. While the company says it is not a target of the investigation, having a co-founder face charges could still create significant reputational damage. Notably, multiple analysts asked the company whether it would need to restate past financials because of this. Super Micro said, “we do not believe we will need to restate,” but it stopped short of an unequivocal denial. This is not the first time accounting or legal issues have surrounded Super Micro. In 2024, the Big Four accounting firm EY resigned as Super Micro’s auditor. EY said it was “unwilling to be associated with the financial statements” prepared by Super Micro’s management. Super Micro’s sales and gross margin trade-off, along with the indictment, highlight the considerable uncertainty surrounding the stock. The reaction from Wall Street analysts after the report reflects that uncertainty. Despite the share surge, JPMorgan Chase & Co. and Wedbush both significantly lowered their SMCI price targets. However, Needham & Company reiterated its Buy rating and set a solid $40 price target. The MarketBeat consensus price target on Super Micro sits near $36, implying about 5% upside from current levels. The average of targets updated after the company’s report is slightly lower, near $35.30. Overall, the company’s profitability concerns have not gone away, and Super Micro now has a new reputational issue hanging over it. |
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