💰 Market Cap: $30.2B | 🏢 6.2K Employees | 🌍 Global Manufacturing (US, Taiwan, Netherlands)

👨‍💼 CEO Charles Liang | 🎯 Total IT Solutions for AI/Cloud | 🇺🇸 San Jose, California

$42.68

📉 -$4.72 (-9.96%) After-Hours

+63% YTD | Nov 4, 2025 Extended Trading

🚀 Needs:

Converting $13B+ new orders to revenue at improving margins • Q2 gross margin trough at ~6% improves to 10-12% by Q4 FY26 as mega cluster completes • DCBBS scales to 30%+ of revenue at 20%+ margins vs sub-10% on servers • Malaysia facility drives 200-300bps margin benefit through cost-effective manufacturing • Customer concentration reduces as emerging CSPs/sovereigns/enterprises diversify beyond two 10%-plus customers • Sequential revenue growth continues through FY26 as Charles suggested, hitting $11-12B+ run rate by Q4

⚖️ Needs:

Meeting "at least $36B" FY26 revenue guidance that Charles calls "very conservative" • Q2 revenue hitting $10-11B range as $1.5B delayed shipments plus new Blackwell systems ship • Gross margins stabilizing at 8-9% range (not recovering to double-digits near-term per David's comments) • Working capital stabilizes using $1.8B AR factoring facility plus "other programs" • $13B+ new orders convert without major cancellations despite 0% incremental margin profile • Cash conversion cycle improves from 123 days back toward 100-day range by fiscal year-end

⚠️ Risk:

$13B+ backlog cancellations or re-negotiations exceed 20% as customers realize SMCI can't profitably deliver • Revenue shifts/push-outs become chronic pattern (Q1 saw $1.5B shift, Q2 could see similar) • Gross margins stay sub-7% through FY26 as management admits "we can't see it clearly" on recovery timeline • Working capital crisis forces equity raise at depressed valuation or forces revenue constraints per Charles: "control revenue based on cash flow" • Customer concentration worsens beyond two 10%-plus customers creating single-point-of-failure risk • xAI margin playbook repeats indefinitely - sacrifice profitability for "lighthouse customers" that never deliver follow-on margin improvement

💰

What Happened

Revenue Miss: $5.0B vs $6-7B guidance, down 15% YoY and 13% QoQ

EPS Miss: $0.26 GAAP/$0.35 non-GAAP vs $0.30-0.42/$0.40-0.52 guidance

$1.5B Revenue Shift: Large customer last-minute config upgrades pushed shipments to Q2

Working Capital Crisis: $918M cash burn, inventory ballooned to $5.7B (up from $4.7B), cash conversion cycle jumped to 123 days

Customer Concentration: Two 10%-plus customers in Q1 (down from four last year), Asia revenue surged 143% YoY

📈

Why It Matters

$13B+ Blackwell Orders: Record new order intake including "largest deal in 32-year history" - signals mega-scale CSP commitment

Q2 Revenue Guidance: $10.5B+ midpoint implies near-doubling sequentially as $1.5B delayed shipments convert

Gross Margin Alarm: Q2 guidance implies 6% gross margin (down 300bps from 9.3%), approaching break-even on massive cluster ramp

Capacity at Scale: 6,000 racks/month capacity (3,000 liquid cooling) theoretically supports $100B+ annual run rate at $3M/rack

DCBBS Strategy Pivot: Charles claims 20%+ margins on full data center infrastructure vs sub-10% on servers, but still ramping

🎯

What's Next

Q2 Revenue: $10-11B guidance (midpoint $10.5B), management says "at least" suggesting upside possible

Full-Year Raised: FY26 now "at least $36B" vs prior $33B - Charles calls this "very conservative"

Margin Deterioration: Q2 gross margin down 300bps to ~6%, Q2 EPS $0.37-0.45 GAAP/$0.46-0.54 non-GAAP vs $0.61 consensus

Working Capital Lifeline: $1.8B AR factoring facility executed, other programs "being put into place" to fund growth

First Gigawatt Project: Charles confirms ramping "one of largest clusters in world" with new mega-scale customer

💡

Bottom Line for Retail Investors

The market delivered a 10% after-hours gut punch to $42.68, but not the catastrophic 16%+ selloff some feared. That Q2 gross margin guidance of ~6% (down 300bps from already-terrible 9.5%) still shocked investors who realized SMCI is essentially operating at break-even to land mega-scale customers. Charles's playbook: sacrifice profitability to prove SMCI can execute gigawatt-scale clusters, then pivot to higher-margin DCBBS business at 20%+ margins. But analysts on the call directly challenged this - they did the same thing with xAI's Colossus 18 months ago and margins never recovered. Management's response was vague: "we'll give guidance when we can see it clearly." The working capital situation remains alarming - $950M negative free cash flow, $5.7B inventory, 123-day cash conversion cycle, and needing emergency AR factoring facilities. Charles admitted they'll "control revenue based on cash flow" which means they might not be able to fund the growth they're guiding. The bull case at $42.68: if SMCI executes that $13B+ backlog, scales DCBBS to 30% of revenue, and margins recover to 10% by late FY26, you could see $70 (64% upside). The bear case: if this becomes a chronic pattern of break-even revenue chasing, working capital blows up, or customers cancel orders, Goldman's $30 target (30% downside) is in play. Current price of $42.68 assumes the base case barely works - $36B revenue with mid-single-digit margins. For retail investors: this is maximum risk/maximum reward territory. You're betting Charles can pull off the largest AI cluster deployment in history without destroying the balance sheet, while simultaneously scaling a 20%-margin infrastructure business that's still mostly vaporware. The ~10% selloff says the market is skeptical but not panicking yet - traders see both the enormous demand ($13B orders) and the execution risk (0% incremental margins).

🚀

Blackwell Backlog Explosion

$13B+ New Orders in Q1: Charles confirmed record order intake with "largest deal in 32-year history"

Doubling Revenue in Q2: From $5B to $10.5B+ as $1.5B delayed Q1 shipments plus new Blackwell GB300 systems ship

Nvidia Allocation Increasing: "Receiving more and more allocation from them" - Blackwell Ultra getting available

Capacity for $100B+ Run Rate: 3,000 liquid cooling racks/month × 12 × $3M/rack = $108B theoretical capacity

🎯

AI Infrastructure Leader

75%+ AI GPU Revenue: Successfully pivoted to highest-growth segment, shipping GB300/B300/RTX Pro/AMD MI350X

DCBBS 20%+ Margins: Charles stated infrastructure business delivers "more than 20% profit margin" vs sub-10% on servers

Already Shipping: "Large account already ordered key DCBBS components" - becoming material in coming quarters

Full Stack Differentiation: Only vendor with rack-scale plug-and-play including DLC2, power, battery backup, water towers, management software

💰

Raised Full-Year Outlook

"Very Conservative" $36B: Charles repeated this phrase multiple times - "hopefully it's a very conservative number"

Sequential Growth Expected: CFO David confirmed "sequential growth through fiscal 2026" beyond Q2

Calendar Year Momentum: When asked about strength through calendar 2025, Charles said "we believe we will continue to grow quickly"

Market Share Gains: Management claims taking share from competitors, positioning as premier DCBBS provider

🔧

Manufacturing Agility

Malaysia Ramping: David confirmed Malaysia facility "starting to stand up more production" and will "contribute greatly going forward"

52 Megawatts Power: Charles stated "52 megawatts of power capacity in place" across global footprint

First-to-Market DNA: "Our practice over 32 years" - consistently ship new platforms before Dell/HP

Silicon Valley Co-Engineering: Proximity to Nvidia enables teams to "work together from early morning to midnight"

📉

Margin Collapse Concerns

Q2 Gross Margin ~6%: Down 300bps from 9.5% in Q1 - David cited "higher costs as we ramp production" on mega cluster

0% Incremental Margin: Q2 revenue doubles but gross profit dollars barely grow - essentially break-even on new business

Large Deal Pressure: David: "$1 billion customer different from $10 billion customer in pricing strategy"

Long-Term Target Abandoned: David confirmed 14-17% margin target from 2021 no longer valid: "market has changed"

💸

Working Capital Nightmare

$950M Negative Free Cash Flow: $918M operations + $32M CapEx - worst quarter in company history

Inventory Crisis: $5.7B (up from $4.7B in Q4), days inventory jumped 30 days to 105 days from 75 days

Cash Conversion Cycle Blowout: 123 days vs 96 days in Q4 - DSO up 5 days, DPO up 9 days

Emergency Financing: Had to activate $1.8B AR factoring facility, David says "other programs being put into place"

⚔️

Dell & HP Market Share Threat

Customer Concentration Rising: Two 10%-plus customers in Q1, down from four customers at year-end - dependency risk

Tier-2 CSP Share Loss: Analyst noted "Dell taking share in Tier-2 CSP and Enterprise AI server markets"

Revenue Shift Precedent: $1.5B pushed from Q1 to Q2 on "last-minute configuration upgrades" - execution volatility

Commoditization Threat: David admits pricing pressure: "a customer ordering $1B different from $10B customer"

🚨

Governance & Accounting Overhang

Pattern Recognition: Analyst asked why repeating xAI margin sacrifice playbook from 18 months ago - margins never recovered

Guidance Credibility: Q1 revenue $5B vs $6-7B guidance (28% miss at midpoint) raises forecast reliability concerns

Cash Flow Control Warning: Charles: "We will control our revenue based on our cash flow" - implies can't fund all growth

Margin Recovery Vague: When pushed on timeline to double-digit margins, David said "we'll give guidance when we can see it clearly"