Barclays slashes Super Micro price target to $438: Is SMCI’s stock decline set to continue?

Super Micro Computer (NASDAQ: SMCI) is grappling with renewed scrutiny after Barclays downgraded the stock and slashed its price target from $693 to $438.

The downgrade, driven by concerns over limited visibility on AI margins and internal controls, has exacerbated the company’s ongoing challenges, leading to a more than 2% drop in its stock price during premarket trading on September 4.

Tumultuous few weeks for SMCI

The Barclays downgrade follows a tumultuous period for Super Micro.

On August 28, the company’s stock plunged over 20% after it announced a delay in filing its annual 10-K report.

This setback was compounded by a critical short report from Hindenburg Research, accusing Super Micro of accounting manipulation and dubious related-party transactions.

Despite assurances from the company that its financial results for fiscal 2024 remain unchanged, investor confidence has been significantly shaken.

Adding to the uncertainty, Super Micro is set for a 10-for-1 stock split on October 1.

While stock splits are generally seen as a positive move, the current negative sentiment surrounding the company suggests this split may not provide the anticipated boost.

Damage caused by Hindenburg’s report

Hindenburg Research’s allegations have been particularly damaging.

The report accuses Super Micro of channel stuffing, inflating sales figures, and engaging in questionable transactions with entities controlled by CEO Charles Liang’s family.

These claims have cast a shadow over the company’s recent impressive revenue growth, which saw a 143% year-over-year increase in Q4 2024.

The allegations have raised significant doubts about the sustainability of this growth and the integrity of the company’s financial statements.

Despite the negative news, some analysts remain cautiously optimistic.

J.P. Morgan defended Super Micro against Hindenburg’s accusations, noting limited evidence of accounting misdeeds beyond past issues.

Meanwhile, Wells Fargo reduced its price target to $375 from $650 but maintained that the company’s fundamentals, though pressured, still show signs of strength.

These mixed signals underscore the precarious position Super Micro faces as it navigates this crisis.

SMCI fundamentals & valuation

On a fundamental level, Super Micro’s business remains strong, driven by robust demand in the AI and data center markets.

The company’s revenue has surged, bolstered by significant contracts such as a major order for Nvidia’s Blackwell AI servers.

However, this growth is tempered by concerns over shrinking gross margins, which fell sharply in the last quarter due to a challenging product mix and higher costs related to new technologies.

Valuation-wise, Super Micro’s stock appears attractive following its recent sell-off, with the forward price-to-earnings ratio now significantly lower than its historical average.

However, this low valuation reflects the high risk associated with the ongoing uncertainty surrounding the company’s financial practices and the potential for further negative developments.

Significant fall has brought SMCI near support

Super Micro’s stock saw an unprecedented 440% surge from the start of this year until March 8. Despite a nearly 65% drop from the peak of $1,229 it made on that day the stock is still up 55% year-to-date.

Source: TradingView

With the recent fall that the stock has seen, it is appearing weak on the charts across all timeframes. The only silver lining for investors who are bullish on the stock is that this recent bearish phase has brought the stock close to its medium-term support near $328.

Hence bullish investors can initiate a small position in the stock near current levels with a stop loss below $328. They can further add to their long position if the stock starts showing some stability near current levels.

Traders who are bearish on the stock must not initiate fresh short positions currently as the stock has already fallen significantly in a short period. They must wait for it to bounce back to levels above $600, where it was trading a few days ago in August.