Super Micro Computer Inc (NASDAQ:SMCI) could see revenue gains from strong demand for AI servers and racks, but margins are likely to remain under pressure, according to a Bank of America analyst note on Thursday.
The investment bank maintained an Underperform rating on the stock, with a price target of $34, slightly above Wednesday’s close of $32.24.
“While revenues could have upside, we see margins remaining challenged,” analysts wrote, highlighting potential pressures from overhead costs, expedited manufacturing, and investments in engineering support and services.
Bank of America estimates revenue for fiscal 2026 at $37.3 billion, above consensus of $36 billion, and fiscal 2027 at $47.6 billion, versus a $44.8 billion consensus. The firm said Super Micro could benefit from growth at existing customers and new client additions, but future large deals may come with low margins in a competitive bidding environment.
Analysts also flagged concerns over working capital and free cash flow. As quarterly revenue accelerates, Super Micro may require higher working capital to support logistics and customer readiness, and free cash flow is expected to remain negative for several years.
Margins are projected to improve only gradually, the report said. For the December quarter, Bank of America models gross margins at 6.5%, down 300 basis points from the prior quarter, and full-year fiscal 2026 gross margin at 7.2%, down from 18.1% in fiscal 2023. Modest improvements to 8% and 9.1% are projected for fiscal 2027 and 2028, assuming increased business from sovereign and enterprise customers.
The firm noted that Super Micro’s large US-based manufacturing capacity, including 6,000 racks per month by the end of fiscal 2026, provides a competitive advantage, particularly amid geopolitical risks and tariffs.
Bank of America reiterated its price target of $34, based on a 15x multiple of estimated fiscal 2026 earnings per share of $2.24.