Brett Schafer, The Motley Fool

Fri, May 23, 2025, 2:00 PM5 min read

• Super Micro Computer's stock has recovered from the lows but is still down 62% from highs.

• The company's revenue is growing quickly, but profit margins are falling.

• With the potential of a cyclical downturn in semiconductors and AI, there is a lot of risk with Super Micro Computer stock.

• 10 stocks we like better than Super Micro Computer ›

Super Micro Computer (NASDAQ: SMCI) has been in the doghouse on Wall Street, but the tide may finally be turning. After falling close to 90% from all-time highs the stock has bumped off the lows and is now up over 50% in the past month. The artificial intelligence (AI) beneficiary that builds computer racks for data centers operates in a rapidly changing sector, leading to wild swings in its stock price. It doesn't help that its profit margins keep moving in the wrong direction, either.

As of this writing, Super Micro Computer stock is still down 62% from all-time highs. Let's see whether this AI beneficiary is a cheap buy for your portfolio at current prices.

AI has supercharged growth for anything related to the advanced semiconductor and data center market in the past few years. Super Micro Computer serves a niche connecting these two fields by buying advanced computer chips and building computer racks ready-built to handle immense AI workloads. With technologies and innovations like liquid cooling systems, Super Micro Computer has been able to win customers by having these systems ready for deployment with high efficiency when it comes to things like electricity and air conditioning spend, which are important for data center deployment.

Last quarter, Super Micro Computer's revenue grew to $4.6 billion compared to $3.85 billion in the year-ago period. This was "only" 19% revenue growth but comes on top of 200% revenue growth in the same quarter a year ago. Super Micro Computer has gone from a tiny player in the computer rack assembly space to expectations for $21.8 billion to $22.6 billion in revenue this fiscal year ending in June.

That is a lot of revenue. One issue is holding up Super Micro Computer though: its deteriorating profit margins. A few years ago, Super Micro Computer's gross profit margin was closing in on 20%. Over the last 12 months, this has fallen to 11.27%, which shows the company's inability to raise prices on its customers buying data center products. Conversely, it shows that the power in the relationship sits with Super Micro Computer supplier Nvidia, which has consistently raised prices on its AI computer chips. As a middleman, the company is struggling to capture much of the value of the AI semiconductor and data center supply chain.