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Investing.com -- Super Micro Computer (NASDAQ:SMCI) is facing mounting headwinds in the AI server space, according to Bank of America Securities, which resumed coverage of the stock with an Underperform rating and a $35 price objective, implying roughly 29% downside from current levels.
While revenue growth remains strong, BofA warns that “margins will remain under pressure in a more competitive AI server/rack market.”
The company’s gross margins have already dropped sharply, from 18% in fiscal 2023 (FY23) to 13.9% in FY24 to 11.3% FY25, with BofA forecasting further declines to 9.4% by FY27.
Moreover, component availability, including GPUs and liquid cooling parts, may limit future growth and negatively impact SMCI’s ability to ship its backlog, the bank cautions.
BofA also highlights increasing competition from Dell (NYSE:DELL) and Hewlett Packard Enterprise Co (NYSE:HPE), which are gaining traction with enterprise customers and large-scale AI workloads.
Dell, for instance, has become a supplier to CoreWeave and xAI, both previously associated with SMCI. Dell’s AI server backlog reached $14.4 billion as of May, and the firm expects to ship more than $15 billion in fiscal 2026.
“Dell is seeing strong revenue growth from AI servers and racks and we model Dell reaching AI server market share similar to Super Micro in 2025, and our forecast suggests that Dell can gain higher market share vs Super Micro in future years,” analysts led by Ruplu Bhattacharya noted.
Additionally, BofA believes that liquid cooling—once a competitive edge for SMCI—could be commoditized as other vendors scale their own solutions. “For large projects, vendors may need to offer this [for] free as an incentive to win,” analysts warned.
Litigation, shareholder dilution, and financial reporting issues add further risk. SMCI is working to resolve material weaknesses in its internal controls, and is under investigation by the U.S. Department of Justice and SEC following a short seller report.
On top of this, the company may need to raise capital to fund working capital, which could dilute existing shareholders.
“We think SMCI should trade at a discount to peers,” analysts said, noting their price target is based on a 13x multiple of 2026 EPS, above the stock’s long-term median. Despite a strong growth profile, the analysts characterize SMCI as a “show-me story.”
Possible upside risks that could boost the stock include unexpected market share gains from enterprise and sovereign customers, successful competition on new GPU platforms, and potential gross margin improvement from increased adoption of higher-margin services, BofA said.