Massive News for Super Micro Stock Investors! | SMCI Stock Analysis

[00:00:00]Shares of Super Micro Computer stock are soaring over 20% as the company announced business is doing better than what they thought it would be doing in the recently completed quarter. I'm going to share with you the details of what Super Micro Computer announced, how that changed my fair value estimate for the company, and if I'm changing my recommendation, my rating on the company after these results were preliminarily announced. I want to thank The Motley Fool for sponsoring this video. Visit fool.com/parkev for the 10 best stocks to buy now. You can see the price action here for Super Micro Computer. It was up 7% on regular trading hours, and it's now up another 20% in the after-market hours. Super Micro Computer stock soaring after the company announced better than expected results in the upcoming quarter. Still, even after this boost, the stock is down 13% year-to-date in 2026, but it's certainly putting investors on a roller coaster ride. You can see the price action here for Super Micro Computer.

[00:01:06]So, here's what the company announced.

[00:01:08]Revenue for the fourth quarter of fiscal year 2026 is estimated to be near the lower end of their guidance of between 11 and 12 and 1/2 billion dollars. The company is raising their estimates for gross profit margins to a range of 15 to 17%, which is nearly double their previous estimate of a range of 8.2 to 8.4% primarily due to a favorable customer and product mix.

[00:01:34]Still, remember a gross profit margin of 15 to 17% is nothing to write home to mom about. You look at the revenues for Super Micro Computer, they're absolutely soaring, but it's not resulting in a subsequent increase in the company's profitability. Longer term, Super Micro Computer has not been a very profitable business. What I have here is the chart for Super Micro Computers operating profit margin over the previous decade, and you can see this is not a very profitable business. Even during the boom times when it's sales absolutely exploded, it's operating profit margin barely surpassed 10%. And in recent quarters, it's operating profit margin collapsed near 2 and 1/2%. It's now back up to about 4 and 1/2%. Even before the boom, its operating profit margins were consistently below 5%. It's just not a very profitable industry, not to single out Super Micro Computer. If you look at Dell Technologies and Hewlett Packard Enterprises, which are competitors of Super Micro Computer, their profit margins are also not exciting, either.

[00:02:45]The industry overall is just not very profitable. There are some industries that structurally do not generate as attractive profit margins as other industries. And the industry that Super Micro Computer operates inside, the competition between itself and its rivals, and the power that the ultimate providers of the technology have, the Nvidias, AMDs, and Intels of the world, eat into the profit margins of Super Micro Computer. So, it needs to offer very attractive terms in order to capture those sales that the company is capturing. But, the company sure is capturing a lot of sales.

[00:03:24]Their backlog rose to record levels at the end of fiscal 2026 with total new orders in excess of $60 billion received during the fourth quarter of 2026.

[00:03:35]These new orders are expected to be delivered over future quarters. This is great news for Super Micro Computer stock investors who have endured, as I shared with you earlier, a roller coaster ride. I shared with you year-to-date the stock is down 13%, but if we zoom out further, over a 5-year stretch, Super Micro Computer stock is still up over 625% and if you recall back in 2022-2023, I had this stock rated as a buy. I recommended this as an excellent AI stock to buy as the business is booming.

[00:04:09]I downgraded the stock only after the company started facing financial reporting questions and issues, delayed reporting of their regular financial statements, accusations from their auditors, etc., etc. That revised my estimates for the company's risk a lot higher because of transparency. I don't know for sure if the numbers that I'm looking at are absolutely accurate or if I'm looking at figures that are adjusted to suit what the management team wants me to see. Still, even after the share price has exploded, Super Micro Computer stock is selling for its cheapest valuation in several years. When you measure it on a forward price to earnings ratio, it's trading at just seven. You can see it's the lowest it's been going all the way back to late 2023 and of course, this is partly attributed to those question marks surrounding the financial statements, surrounding the honesty and transparency of the management team. Of course, investors are placing a higher risk when a company endures those kinds of question marks multiple times like Super Micro Computer has experienced.

[00:05:22]So, I revised my estimates for Super Micro Computers free cash flow over the next few years higher because of this news.

[00:05:32]The intrinsic value per share was formerly in the single digits, my fair value estimate for the company, but now it jumped to over $15 per share.

[00:05:41]Still, the stock price is now over $25.

[00:05:45]In fact, in the after-market hours, it's up closer to $30 per share, $31 closer to.

[00:05:52]My current market price tracker only looks at the price during regular trading hours. It hasn't yet reflected the after-market hours price action.

[00:06:01]But, it looks even more overvalued if you consider that it's over $30 per share now, and I looked at it at about $15.

[00:06:10]Comprehensively though, I wouldn't say the stock is overvalued anymore. At a forward price to earnings near its lowest level in years with a fair value above $15, I would say the stock only looks slightly overvalued when looking at valuation comprehensively. If I just looked at my DCF model, it would look overvalued. But, I look at valuation comprehensively. I look at market multiples, I look at discounted cash flow valuation models, I look at other areas of valuation to determine overall comprehensive what I feel about a company and its market price compared to the value I'm getting. So, for Super Micro Computer, I would say it's only slightly overvalued. So, this is definitely good news for the company and its investors, but given that it's still slightly overvalued in my opinion, and it still has the same management team that's been in place over the past several years, who's been questioned about their financial reporting transparency, I don't see any urgency to buy this business. So, I'm keeping it rated as a hold. While certainly admitting that this is great news for the company's investors, I'm rooting for investors to make some money on this business. I know it's a popular stock with retail investors, so I'm rooting for the company's success. I'm hoping the management team can earn back the trust of Wall Street and investing public and deliver quality and informative and transparent financial results that analysts can use to determine the value of the business.