We recently did a SMCI deep dive here. We expect SMCI to benefit from the AI trend due to its position between hyperscalers and major chip design companies.
Our investment thesis is playing out as SMCI recently revised up its Q4FY23 guidance which was better than expectedQ4FY23 guidance which was better than expected. So we will listen to the drivers behind this upward revision and whether it will carry through to FY24 and its potential impact on FY2024 consensus earnings estimates.
Revenue and EPS:
- SMCI Management raised Q4FY23 revenue guidance to $2.15B-2.18B from previous guidance of $1.7B to $1.9B, vs consensus of $1.96B
- Q4 GAAP eps guidance raised to $3.25 to $3.35 from $2.13-$2.65
- Non-GAAP guidance raised to between $3.35 to $3.45 from $2.21 to $2.71 vs consensus of $2.88
- Q1FY24 consensus eps of $3.19, FY24 consensus eps of $14.51 and revenue of $8.47B
Margins:
- Q323 gross margin was 17.6% vs 18.7% in Q223
- Adj Q323 gross margin was 17.7% vs 18.8% in Q223
- Q323 opm was 7.7% vs 52 % in 11.9% in Q223.
- Adj Q323 gross margin was 8.7% vs 12.8% in Q223
Cash Flow:
- In Q323, SMCI posted $198m in op cash flow and $190m in free cash flow. Margins were 15.5% and 14.8%, respectively.
- In Q223, SMCI posted $161m in op cash flow and $151m in free cash flow. Margins were 8.9% and 8.4%, respectively.
- $363m in cash and $187m in debt.
What we are watching for:
- The bulk of SMCI’s growth will depend on supply chain, which we outlined in our recent analysis. The demand is there, can the company meet the demand or are the key component supply shortages going to keep the company’s growth in line for now? Clearly, the pre-announcement is a good sign that the supply chain is not getting in the way too much, however, this remains the top concern for SMCI's near-term growth. Per our analysis, lead times are at 26 weeks compared to a 10-14 week target. This is an improvement from 40 weeks. Read more here.
- Discussions around their 10%+ customer Meta and the other unnamed 10% customer increasing orders (ideally) and/or any other new customer wins that can be named or quantified
- Comments on the partnership with Nvidia, per our write-up: “Supermicro is closely partnered with Nvidia on the H100 GPU rollout with air flow designs that reduce fan speeds, lower power consumption, lower noise levels and lower the total cost of ownership.”
- Discussions on other partnerships, such as AMD and Intel.
- FY2024 consensus eps estimate is $14.51. There was a miss last quarter on EPS, which management stated: “The shortfall was primarily due to key new component shortages for Supermicro’s new generation server platforms which have been mostly resolved to-date.” We will look for this EPS to stand and will evaluate if there can be a beat in the future.
- We will assess if SMCI is taking more market share, and if so, how much market share?
- We will listen for and note any discussions on the margins (this was also detailed in our most recent writeup in the conclusion).
What analysts are watching for:
Loop Capital analyst Ananda Baruah raised the firm's price target on Super Micro Computer to $400 from $325 and keeps a Buy rating on the shares ahead of its Q2 results tomorrow. Having positively pre-announced Q4 earnings last month, the company's commentary will provide the "latest rungs on the ladder" to achieving long-term EPS of $20.00
Rosenblatt analyst Hans Mosesmann raised the firm's price target on Super Micro Computer (SMCI) to $375 from $300 and keeps a Buy rating on the shares after the company pre-announced "record" bookings. The market is "set to be on its heels for several quarters" and the firm sees Super Micro capturing incremental AI supply as a premier enterprise partner to Nvidia (NVDA) and its Hopper ramp, the analyst tells investors.
Wedbush analyst Matt Bryson notes that Supermicro updated its Q4 outlook, with revenues now expected to come in at $2.15B-$2.18B, vs. the original guidance range of $1.7B-$1.9B and consensus at $1.8B. EPS is now expected to be about $3.35-$3.45, compared to the previously provided range of $2.21-$2.71. As part of the release, management signaled that order rates and design activity remain at record levels driving rapid backlog growth, the firm adds. While Wedbush doesn't see any near-term risk to Supermicro results, the firm is retaining its more cautious stance and Underperform rating on the name with a price target of $65.
The I/O Fund Analyst Team contributed to this analysis