Super Micro Computer downgraded to Sell by Goldman Sachs

00:00 Speaker A

Another trending ticker we’re watching SMCI. Goldman Sachs downgrading the stock to sell from neutral, saying they view the risk reward as unfavorable given downside risks on valuation, competition and gross margins. You can see shares of Super Micro Computer down about 2%. Bucking, what we’re seeing in the wider trend of a lot of the tech and chips names in particular moving to the upside this morning. But and, we were just looking through the note together. A couple of things stuck out to both of us here that pressure on gross margins, the idea that transitioning from the Hopper to the Blackwell chip from Nvidia, it’s going to cost them and that’s going to hurt their margins. Yes, they still see a revenue story, but not enough in terms of of the outlook moving forward for the stock that the run-up has already sort of priced in it sounds like.

01:19 Speaker B

It’s that, it’s that little phrase you snuck in there, Maddie, which was not enough. Let’s just read what it says. Goldman’s saying we expect SMCI to more than double its 2024 revenue by the end of 2026. That’s within two years, but still not enough. And it feels like the story of Nvidia, right? Which has just had fabulous earnings quarter after quarter, but the earnings outlook, the revenue outlook has been just not enough. This really just feels like another example of how expectation is the name of the game in the whole chip sector.

02:21 Speaker A

And another great example just to me in terms of evaluating stocks, that it’s really about the earnings growth. Like it always comes back to the earnings growth. We talk so much about SMCI, the accounting issues, is the CEO going to remain the CEO? All of this back and forth, will they get delisted? And ultimately what it comes down to in our quick look at this, didn’t even mention from Goldman, the the accounting issues. It’s about the growth story for the company moving forward.

03:03 Speaker B

And a lot of conversation about the valuation relative to peers. One example is Dell is a comp that keeps coming up in this report as we read through it, basically saying, you know, SMCI too expensive relative to Dell and some of the others. I you know, I don’t think Dell is really one that we thought of as cutting edge as some of the other names out there. So it looks as though the focus on fundamentals is coming back into coming back into play.