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This Month's Bonus Story
Super Micro Surges Over 20% as Margins Soar, Sales Fall ShortAuthor: Leo Miller. Article Published: 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.
- Special Report: Elon Musk already made me a “wealthy man”
Super Micro Computer (NASDAQ: SMCI) roared back after its latest earnings report. The artificial intelligence (AI) server company jumped more than 24% after reporting results. This marks the stock’s second consecutive post-earnings gain, following a 14% rise after its February release.
Even with those sharp moves, Super Micro shares are up only 16% in 2026. That comes after the U.S. government brought 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 encouraging signs in its latest quarter, but the 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 was far below what both the market and the company expected. Super Micro had forecast net revenue of “at least $12.3 billion.” The company missed that guidance by more than $2 billion and also fell well short of Wall Street’s forecast of $12.39 billion. On the other hand, Super Micro beat estimates by a wide margin on adjusted earnings per share (EPS). Adjusted EPS rose 171% YOY to 84 cents, easily topping expectations of 63 cents and the company’s guidance of “at least 60 cents.” This contrast reflects a dramatic improvement in Super Micro’s gross margin from one quarter to the next. In Q2 of fiscal 2026 (FY2026), the company generated $12.68 billion in revenue, but adjusted gross margin fell to 6.4%, resulting in adjusted gross profit of $812 million. In Q3 FY2026, by contrast, adjusted gross margin surged by 370 basis points to 10.1%. Even though revenue was much lower at $10.24 billion, adjusted gross profit climbed significantly to $1.03 billion. That was one of the key reasons Super Micro missed revenue expectations by a wide margin but exceeded adjusted EPS estimates by an equally wide margin. Gross Margin Improves, But at the Cost of RevenueSuper Micro’s extremely low gross margin was a major concern after its previous earnings report. So it makes sense that the market reacted positively to the improved margin in the latest results. Still, when looking beneath the surface, it’s hard to argue that Super Micro delivered a meaningful improvement. The margin gain came alongside a revenue miss of more than $2 billion, with certain customers delaying deployments. If those sales had been recognized, gross margin could easily have been much lower than 10.1%. Super Micro’s guidance offers more evidence of this. The company expects to recover some of the revenue it missed in Q3 next quarter. Based on midpoint figures, it sees sales rising to $11.8 billion, but gross margin falling to 8.3%. That suggests sales and margins are moving in opposite directions. While that is not always a problem, it is concerning for a company with already very thin gross margins. Strong companies are often able to grow revenue and improve margins at the same time, but that is not what Super Micro is showing. However, the company remains confident in its Data Center Building Blocks Solutions (DCBBS). DCBBS carries higher gross margins, typically above 20%. Super Micro aims to scale DCBBS to more than 20% of net income over the next two years, which could help improve its overall margin profile. Still, the company did not disclose DCBBS 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, the fact that its co-founder is under scrutiny could create significant reputational damage. Notably, several analysts asked whether the company would need to restate past financials because of the case. Super Micro said, “we do not believe we will need to restate,” but stopped short of giving a definitive answer. This is not the first time accounting or legal issues have surrounded Super Micro. In 2024, Big Four accounting firm EY resigned as the company’s auditor. EY said it was “unwilling to be associated with the financial statements” prepared by Super Micro’s management. Super Micro’s revenue and gross margin trade-off, along with the indictment, highlight the significant uncertainty surrounding the stock. The reaction from Wall Street analysts after the report reflects that uncertainty. Despite the share price surge, JPMorgan Chase & Co. and Wedbush both significantly lowered their SMCI price targets. Needham & Company, however, reiterated its Buy rating and maintained a solid $40 price target. The MarketBeat consensus price target for Super Micro sits near $36, implying roughly 5% upside. The average of targets updated after the company’s report is slightly lower, near $35.30. Overall, profitability concerns remain, and Super Micro now has a new reputational issue hanging over it. |
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