Super Micro Computer's (SMCI) sales have largely met or exceeded expectations in recent quarters, but gross margins have been a consistent issue, though that changed this quarter as margins beat estimates handily, Wedbush Securities said Wednesday.
The company's fiscal Q3 gross margin was nearly 10.1%, up 370 basis points sequentially. While it guided for margins to fall to 8.2% to 8.4% this quarter, they will still be about 80 basis points above Wedbush's prior outlook at the midpoint, according to the note.
The company is seeing more demand from emerging/smaller neoclouds. These smaller customers seem to have less leverage to gain discounts, yielding better trends for Super Micro, according to the note.
Wedbush updated its fiscal Q4 estimates and expects EPS of $0.72, revenue of $12 billion, and gross margins of 8%, compared with the prior forecast of $0.68, $12.58 billion and 7%, respectively.
For fiscal 2026, the brokerage expects EPS of $2.61, revenue of $39.94 billion, and gross margins of 8.2%, versus $2.35, $42.64 billion and 7% previously.
Wedbush kept a neutral rating on Super Micro Computer and lowered the price target to $34 from $42.
Shares of the company rose more than 16% in Wednesday trading.
Price: $32.49, Change: $+4.66, Percent Change: +16.74%