$Super Micro Computer (SMCI.US)$The earnings report will be released after market close on August 6th Eastern Time. Institutions predict that its Q4 FY24 will achieve revenue of $5.293 billion, an increase of 142.27% YoY, and expected EPS of $7.83, an increase of 128.31% YoY.

Since the beginning of this year, Super Micro Computer has risen more than 140% due to its strong position in the AI server market, far outperforming AI-concept stocks such as Nvidia and becoming the most popular AI darling. However, since the announcement of the previous quarter's financial results, the stock price dropped by 14% in a day due to lower-than-expected Q3 results, and has fallen more than 20% in the past four months.

In addition, the recent volatility in the US stock market due to the disclosure of Mag 7's financial report and a series of major economic data has intensified. Can Super Micro Computer stand firm in the current challenging market?

Product revenue will remain strong, and performance in the OEM equipment and large data center markets is remarkable.

Previously, Super Micro Computer's Q4 and full-year performance guidance exceeded market expectations. It is expected that Q4 FY24 revenue will reach a range of $5.1 billion to $5.5 billion, and adjusted EPS will be set within the range of $7.62 to $8.42.

According to Bloomberg's unanimous expectations, Super Micro Computer's product revenue will continue to show strong growth momentum in FY24 Q4 financial performance.

Specifically, in terms of product type, the expected revenue of its core server and storage system products will reach $5.076 billion, a MoM growth of 37%, accounting for 96% of total revenue; the expected revenue of subsystem and accessory products will be $0.221 billion, a MoM growth of 46%, accounting for 4% of total revenue.

In terms of market distribution, Super Micro Computer's performance in the OEM equipment and large data center markets is particularly outstanding. It is expected that revenue will reach $2.93 billion, a MoM increase of 63.6%, demonstrating the company's strong competitiveness in this key area. In addition, enterprise-level and channel markets also contributed $2.25 billion in revenue, a MoM increase of nearly 20%, reflecting the wide coverage and robust growth of the company's business.

It is worth noting that although the revenue scale of the 5G, telecommunications, and edge/IoT markets is relatively small, only $46 million, it also indicates the company's active layout and exploration in the emerging technology field.

What are the other focuses of Super Micro Computer's earnings report?

Looking at this Super Micro Computer earnings report, the market will focus on the DLC project, OEM system gross margin, cooperation with Musk's xAI, the release of new AI products, and operating capital needs.

1. Regarding the DLC project, Bloomberg BI analysts pointed out that the company's innovative DLC liquid cooling Building Blocks and cabinet-level overall solutions have mass production capabilities. From April to June, the company delivered more than 1,000 cabinets with NVIDIA HGX AI supercomputers to three top customers. The current monthly production capacity has exceeded 2,000 cabinets, and the DLC racks are expected to complete turnover within 2 to 4 weeks. Each DLC cabinet has a peak power of 100 kW to 120 kW, showing strong performance.

However, Barclays analysts pointed out that some DLC projects may encounter delays due to supply chain challenges, which may be attributed to short supply of liquid cooling components (such as cold plates, manifolds, etc.) or suppliers strengthening quality inspection processes to ensure no leakage, thereby extending the production cycle and affecting the original project schedule.

2. In addition, against the backdrop of the NVIDIA Blackwell cycle, as the market competition heats up due to the increase in hundreds of OEM system choices, it is particularly important to evaluate with confidence whether Super Micro Computer's gross profit margin can recover to and surpass 14% (the long-term target is set between 14% and 17%). At the same time, facing Dell's strategy of seizing the AI server market at low profit margins, gross margin continues to be a major challenge for Super Micro Computer.

According to Wells Fargo analysts, the actual gross profit margin for this quarter is expected to reach a middle-of-the-road level of 14%, and in the long run, the high gross profit margin characteristics (due to the premium ability brought by the key components of SMCI's self-developed liquid cooling system) of the DLC cabinet business will help the overall gross profit margin move toward the target of 14%-17%.

Since Super Micro Computer has shown a significant leading advantage over Dell in the DLC cabinet field, it is expected to enter the substantial shipping phase of the market at least two quarters ahead of schedule, while Dell's corresponding plan may be delayed until the end of 2024 or 2025.

3. On the other hand, it is also necessary to pay attention to Super Micro Computer's cooperation with Musk's AI startup xAI, which will create server cabinets required for its supercomputer for driving AI chatbot Grok updates. Currently, xAI is committed to developing supercomputers, which are expected to be put into operation before the fall of 2025.

According to Musk, the unit will be split evenly between Super Micro Computer and Dell.

In addition, Super Micro Computer will launch multiple innovative products from September to December, strengthening support from NVIDIA and Intel, using efficient liquid cooling and ENRC technology, and introducing high power density new chassis and AI inference optimized systems based on future GPUs (NVIDIA H200/B100/B200/GH200/GB200 and Intel Gaudi2/Gaudi3 and AMD MI300X/MI300A).

At the same time, attention needs to be paid to Super Micro Computer's capital intensity and funds needed for inventory expansion, especially as inventory expansion increases to $4.125 billion (an increase of 67% from the previous quarter) and purchase commitments increase to $2.9 billion (an increase of $1 billion from the end of the previous quarter).

Previously, the company's CFO stated that they would hope to raise additional funds to meet potential market demand.

How has the stock price performed on past earnings days?

According to Market Chameleon, in the past 12 quarters, in days where backtesting was conducted, Super Micro Computer had a higher probability of rising on the day of its performance announcement, around 75%, with an average stock price change of ±12.8%, a maximum decline of -23.4%, and a maximum increase of +31.2%. Super Micro Computer's performance on the two quarterly announcement days this year were -14% and +3.5%, respectively.

Currently, Super Micro Computer's implied change is ±13.4%, indicating that the options market is betting that its single-day rise or fall after performance will reach 13.4%; in comparison, Meta's average stock price change after the previous four quarters was ±10.8%, indicating that this stock's current option value is overestimated.

Click to make an appointment: Meta 2024 Q2 performance live (instant translation)

Editor/ping