why is smci stock dropping

The reasons for the recent decline in SMCI (Super Micro Computer, Inc.) stock price can be analyzed from multiple dimensions such as financial performance, legal and compliance risks, industry competition, macroeconomic environment and market sentiment. Here’s a closer look:

First, the financial performance was lower than expected and the growth outlook was downgraded

Quarterly results were below expectations

Preliminary data for the second quarter of fiscal 2025 (ending December 31, 2024) showed SMCI net sales of $5.6 billion to $5.7 billion, below analysts’ expectations of $5.77 billion, and adjusted earnings per share of $0.58 to $0.60, slightly below expectations of $0.61. Despite a 54% year-over-year increase in sales, a slowdown in profit growth (non-GAAP earnings per share increased by only 5% year-over-year) raised concerns about profitability.
Full-year revenue guidance has been revised sharply

The company lowered its fiscal 2025 revenue guidance from $26 billion to $30 billion to $23.5 billion to $25 billion, a decrease of 9.6% to 16.7%. This adjustment indicates that management’s expectations for market demand or supply chain improvement have weakened, which has a direct impact on investor confidence.
Gross margin pressures

Non-GAAP gross margin remained low at 11.8%-11.9%, related to intense competition and rising costs in the hardware industry. While liquid cooling technology (contributing $800 million in revenue) was the bright spot, overall profit margins were limited and it was difficult to support high valuations.

2. Intensified legal and compliance risks

Regulatory Investigations and Litigation

SMCI received subpoenas from the U.S. Department of Justice and the SEC in late 2024 over undisclosed investigations. In addition, multiple securities fraud class action lawsuits alleging opaque or misleading corporate disclosures add to the uncertainty of stock prices.
Auditor resignation and financial reporting delays

Ernst & Young (EY) resigned as an independent auditor and the company failed to submit its 2024 annual and quarterly reports on time, raising questions about the authenticity of the financial data. The Nasdaq issued a delisting warning, further undermining market trust.
Convertible bond issuance and debt structuring

The company issued US$700 million in convertible bonds to support growth, but the market may interpret this as a signal of tight cash flow, coupled with changes to the terms of existing bonds, and investors are concerned about financial leverage risks.

3. Industry competition and customer dependence risks

Uncertainty in the technology transition

SMCI is highly reliant on GPU orders from NVIDIA, but the latter is moving from Hopper chips to the Blackwell architecture. This iteration of technology can lead to order volatility, which has led to the downgrade of SMCI to “neutral”.
Competition in liquid cooling technology intensifies

Although SMCI is leading the way in liquid-cooled servers, competitors such as Dell and HPE are accelerating the deployment of similar solutions, which may erode its market share. The Citi report notes that structural risks, such as customer concentration, limit the upside.
Supply chain and inventory risks

The company has repeatedly mentioned supply chain bottlenecks, and if the supply of key components (such as high-end chips) is insufficient, it may affect the delivery capacity. In addition, the increase in customer concentration (such as large customers such as Meta) has led to inventory management pressure.

Fourth, the impact of macroeconomic and market sentiment

Technology stocks pulled back overall

At the beginning of 2025, U.S. tech stocks were generally under pressure due to rising interest rates, overvalued valuations, and geopolitical risks such as trade wars. As a highly volatile target, SMCI is more susceptible to market sentiment.
Short pressure and short covering risk

India’s Nehr research report alleges that SMCI was involved in connected transactions and financial manipulation, and although the company denied it, short-selling activity exacerbated stock price volatility. If the shorts are covered, they may rebound in the short term, but they need fundamental support in the long term.
The growth expectations of the AI industry are divergent

Despite the strong demand for AI servers, there are doubts about whether SMCI can continue to maintain its technological leadership, such as supporting the Blackwell architecture. Some analysts believe that the competition for AI infrastructure will become fierce.

5. Valuation revision and investor expectation management

P/E and TP lowered

As of April 2025, SMCI’s price-to-earnings ratio has retreated from its all-time high, and Citi has given a price target of $39 (neutral), which is significantly lower than the previous forecasts of more than $1,000 from many institutions. The valuation revision reflects the market’s reassessment of the sustainability of growth.
The market’s cautious approach to high-growth stocks

In the face of macroeconomic uncertainty (e.g., inflation, recession risk), investors prefer companies with stable cash flows. SMCI, as a hardware company with high R&D investment and low gross profit margin, is facing selling pressure.

summary

The decline in SMCI’s share price is the result of a combination of factors: short-term financial failures, legal risks, and uncertainty about the technical transition have weakened market confidence; Increased competition in the industry, macroeconomic pressures, and short-selling activity amplify volatility. The following indicators should be paid attention to in the future stock price trend:

the results of the legal investigation and the progress of the financial report disclosure;
Blackwell Architecture Order Fulfillment;
gross margin improvement and cost control capabilities;
The demand for the AI server market continues.

Companies that can effectively address compliance issues and strengthen their technological advantages may still benefit from the expansion of AI infrastructure in the long term, but risks will still dominate in the short term.