Super Micro Computer: Growth Is Great, Margin Pressure May Last A Bit Longer (Archive)

This 5-Minute Pitch was originally published on Seeking Alpha before the launch of the Hunting Alphas website. It is shared here to showcase my previous work and track record. New 5-Minute Pitches published on this site will not be disseminated anywhere else.

Elevator Pitch

• Boosted by a rapid increase in penetration of direct liquid cooling and a dominant market leadership, Super Micro Computer is on an impressive growth track.
• Gross margins seem to still be a bit volatile and unpredictable, as Q4 FY24 delivery was meaningfully below management's guidance despite accounting for some of the higher supply-side costs.
• The company's gross margin guidance for Q1 FY25 seems to indicate a slower ramp up to the longer-term target range.
• Valuation multiples have moderated sharply after a parabolic run-up. Now, the stock trades at a modest (arguably partly deserved) premium to its historical trading range.
• Technically, relative to the S&P 500, I see scope for further downside and hence underperformance vs. the market. However, I expect a few relief rallies (moments of outperformance) along the way.

Read the full article here.