By Medha Singh
(Reuters) -Shares of AI high-flier Super Micro Computer tumbled to a six month low on Wednesday as a faster-than-expected contraction in the server maker's gross margin overshadowed a robust sales forecast.
The company reported an adjusted gross margin of 11.3% for the fourth quarter, down from 17% a year earlier, and below analysts' average estimate of 14.1%, according to LSEG data.
"It seems like a company issue, not necessarily a demand issue and that's why the stock is getting punished and the market isn't," said Kim Forrest, chief investment officer at Bokeh Capital Partners.
"They were making money hand over fist but (it appears) they're ill-prepared to deal with the demand."
Competitive pricing also hit gross margin, the company said. Super Micro has lowered prices for its servers to stave off rivals such as Dell and HP Enterprise.
Dell dropped 4.4%, while HP Enterprise dipped 0.9%. The broader Philadelphia chip index rose 3.5%.
Among the biggest beneficiaries of the AI boom, Super Micro's shares have more than doubled in value in 2024, making it the best performing S&P 500 stock through Tuesday close.
The company's stock, which dropped 15.7%, logged a turnover of $3.9 billion by 10.30 a.m. ET, more than Microsoft's $1.6 billion.
Super Micro also signaled on Tuesday that it was facing higher supply chain costs and a tight inventory of key components.
CEO Charles Liang, however, reassured investors that margins would return to a normal range before the end of fiscal 2025.
The company forecast first-quarter profit below Wall Street targets but expects quarterly and annual sales above estimates.
Some analysts also pointed to a recent hammering of chip stocks on concerns over their lofty valuation in a slowing economy for the sharp share drop.
"Right now with all the nervousness in the market, and rightly so, any miss on earnings, especially by a notably tech company (like SMCI), is going to bring a wave of selling," said Ed Cofrancesco, chief executive officer at broker-dealer International Assets Advisory.
"Still, long term, Super Micro is well positioned to continue to be a main player in AI infrastructure support."
The stock trades 17.24 times earnings estimates for the next 12 months, compared to Dell's 11.07 multiple.
Super Micro also announced a 10-for-1 stock split effective October 1.
(Reporting by Medha Singh in Bengaluru; additional reporting by Shashwat Chauhan; Editing by Alan Barona and Sriraj Kalluvila)
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