Key Takeaways
- Super Micro fell 6% today, alongside Flex, on fears of Texas limits on data center construction after Tuesday’s midterms.
- Super Micro’s full-year gross margin guide of 11.8%-12.2% sits below the quarter’s 12.8%, and one customer made up 44% of revenue.
- The stock traded at 6.4x forward earnings before today’s drop, a discount likely to hold until its sales turn into cash.
Super Micro Computer (SMCI) sank 6% today as Tuesday’s midterms dragged down AI hardware stocks.
Flex (FLEX) fell 13% with no news of its own. Its data center business is its fastest-growing: cloud and power infrastructure revenue rose 54% to $2.5 billion last quarter.
A moratorium in the biggest market
In Texas, Democrat Gina Hinojosa, who promised a data center moratorium, unseated Gov. Greg Abbott.
Texas accounts for more than 25% of planned US data center capacity through 2030, according to Yahoo Finance. Raymond James analyst Ed Mills said a strong Democratic showing there could mean “increasing concerns about data center moratoriums and more restrictive AI regulation.”
Data center builders and landlords fell even harder: Comfort Systems USA (FIX) fell 16%, Quanta Services (PWR) lost 12% and Texas Pacific Land (TPL) dropped 14%.
The quarter had a catch of its own
The beat was huge: record revenue of $19.9 billion for the quarter ended Sept. 30, and a fiscal 2027 sales outlook raised to $72 billion-$82 billion.
But adjusted gross margin fell to 12.8% from 17.6% in the June quarter as AI solutions grew to 71% of sales. CFO Mark Long guided to 11.8%-12.2% for the year. And one customer made up 44% of revenue.
Nor is the cash there yet: operations used $434 million as inventory climbed to $15.1 billion.
Analysts went into the report expecting fiscal 2027 earnings per share to rise 31%, while sales now look set to nearly double:
Long’s margin guide is still above the roughly 10.3% analysts were modeling, so I’d expect those estimates to rise.
TIKR tracks 18 analysts on Super Micro Computer. How many say “Buy”?
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Cheap for a reason
Super Micro traded at 6.4x forward earnings before today’s drop, less than half its five-year average:
At today’s price, it’s about 6x, right around its five-year low.
The way I see it, Texas is the smaller of Super Micro’s problems. A moratorium would hurt Texas Pacific Land, Comfort Systems and Quanta most; Super Micro’s customers can build elsewhere. Until its record sales bring in cash, I don’t expect that 6x multiple to move much.
Of course, a campaign promise isn’t law yet, and Super Micro’s early-February report is its next shot at positive operating cash flow.
So what is Super Micro stock actually worth?
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Disclaimer:
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