SMCI cut to sell at JPMorgan

Investing.com -- JPMorgan downgraded Super Micro Computer (NASDAQ: NASDAQ:SMCI) to Underweight from Neutral on Wednesday, with a revised price target of $23, down from $50, citing increased uncertainty surrounding both the company's business fundamentals and its financial reporting practices.

JPMorgan (NYSE:JPM) analysts noted several key concerns driving the downgrade, beginning with transparency issues.

They explained: "The company refrained from providing further transparency around the issues leading to the disagreement with the prior auditor (E&Y) even as it reaffirmed the Special Committee opinion that the Audit committee had acted independently and that there is no evidence of fraud or misconduct."

Additionally, JPMorgan cited management's lack of commitment to leadership changes as a negative factor, especially as the company has yet to appoint a new auditor—a delay that could further prolong its noncompliance with SEC filings.

In terms of business fundamentals, JPMorgan believes demand for Super Micro's current generation Hopper-based servers has slowed, with customers now awaiting next-generation Blackwell-based products.

They state that this lull in demand could force Super Micro to reduce prices, pressuring its margins in a highly competitive industry.

JPMorgan also highlighted concerns over Super Micro's "$5 billion of inventory on the balance sheet," which could amplify pricing risks as demand moderates.

Furthermore, Super Micro is said to face challenges in maintaining its gross margins within its long-term target range of 14-17%, given that delays in next-generation GPU products may impact its leadership in AI server capabilities.

JPMorgan also expects the company to lose market share to other server providers, especially in the enterprise segment.

The investment bank has lowered its revenue growth expectations and now applies a 7x P/E multiple to its 2026 earnings forecast for Super Micro, reflecting what it sees as greater financial uncertainty ahead.