Supermicro stock is surging, but one number should still worry investors

Super Micro Computer stock NASDAQ:SMCI surged 7.6% in after-hours trading on Tuesday after the AI-server maker delivered an earnings beat and issued revenue guidance far above Wall Street expectations.

Adjusted earnings reached $1.70 a share in the fiscal fourth quarter, versus roughly $0.92 expected, while adjusted gross margin climbed to 17.6%.

Revenue nearly doubled from a year earlier to $11.1 billion, although it missed the roughly $11.6 billion consensus.

Supermicro expects first-quarter sales of $14.5 billion to $15.5 billion and fiscal 2027 revenue of $65 billion to $72 billion, compared with Wall Street’s roughly $53 billion estimate.

Yet one number complicates the celebration: $7 billion, the size of the equity and equity-linked financing programme Supermicro unveiled in June to help fund its AI orders.

Supermicro earnings finally gave Wall Street what it wanted

Supermicro’s margin recovery was a reason to cheer as adjusted gross margin of 17.6% was far above the company’s original 8.2% to 8.4% forecast.

Earnings therefore accelerated much faster than sales, offering evidence that Supermicro is moving beyond the low-margin phase that worried investors earlier in the AI-server boom.

Demand also remains formidable. The company said it received more than $60 billion of new orders during the June quarter and entered fiscal 2027 with a record backlog.

Revenue still fell short of expectations, but management blamed delays in customers securing power, cooling and networking infrastructure.

Chief executive Charles Liang said the delayed business should shift into later quarters rather than disappear.

The uncomfortable $7 billion behind the AI boom

The financing required to support that growth is the harder part of the story.

Supermicro announced plans in June for roughly $7 billion of common equity and equity-linked financing, including mandatory convertible preferred securities and an at-the-market stock programme.

It said the proceeds would help fund component purchases needed to satisfy AI-server orders.

Wedbush analyst Matt Bryson welcomed the stronger order momentum but warned the financing was “necessarily dilutive in nature,” according to Investor’s Business Daily.

He also noted that the value of those orders ultimately depends on the margins Supermicro earns from them.

That matters because AI servers require expensive Nvidia GPUs, memory and networking components before customers pay.

MarketWatch reported when the financing was announced that Supermicro had generated about $6.8 billion of negative free cash flow over the preceding year.

Mizuho maintained a Neutral rating and cut its price target to $34 in July, arguing that Supermicro’s expanding backlog was likely to require additional financing.

Can Supermicro stock grow without giving the upside away?

The bullish counterargument strengthened after Tuesday’s results.

A 17.6% adjusted gross margin changes the economics. If Supermicro can sustain strong profitability while converting its $60 billion-plus order pipeline into revenue, those earnings could outweigh the dilution from raising capital.

Investors should watch three numbers: gross margin, free cash flow and diluted share count.

Together, they will show whether Supermicro’s enormous revenue opportunity is creating genuine per-share earnings power or producing ever-larger sales that require ever-larger amounts of outside capital.