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Investing.com -- On Friday, Citi initiated coverage of Super Micro Computer (NASDAQ:SMCI) with a Neutral rating and $39 target price.
The bank cited strong secular growth in AI infrastructure but warned that intensifying competition could limit upside.
“Supermicro remains one of the leading players to GPU-as-a-Service cloud providers and enterprises,” Citi analysts wrote.
With an estimated 8% share of AI server revenue, the company is “leveraged towards a high-growth, HPC/AI computing” segment, with about 70% of its revenue tied to AI-related demand, according to the bank.
Citi noted that CoreWeave, xAI, and Tesla (NASDAQ:TSLA) are among Supermicro’s key customers.
While acknowledging Supermicro’s strong market share gains, growing from roughly 3% to 6% in the past three years, Citi said the company is now facing “an increasingly competitive AI Server landscape pressuring margins.”
Dell (NYSE:DELL), in particular, was flagged as a rising threat.
“Shares are currently trading at 9-10x NTM PE, below its 5-year median (11-12x), which we believe is warranted,” Citi wrote, attributing the valuation discount to concerns around “tariff uncertainty” and intensifying competition.
Citi also cited financial and structural concerns, including “high levels of customer concentration (58% from top 3 customers), trailing FCF margin vs. peers, and investor concerns around internal controls (following past delays with their quarterly filing).”
Despite the competitive headwinds, Citi said it remains “constructive on secular AI server spend,” though estimates have been moderated in light of “broader tariff-related economic concerns that could pose some expansion challenges in the non-hyperscaler + enterprise market.”
Citi flagged several risks to monitor, including “AI server spend and revenue volatility given GPU allocation and macro concerns,” as well as the company’s need to raise capital and improve free cash flow.