Super Micro Computer Inc.’s stock gained ground in late trading today after it delivered stellar second-quarter financial results and issued a forecast that indicates massive demand for its artificial intelligence data center server hardware.

The company reported adjusted earnings per share of 69 cents, easily beating the 49-cent-per-share consensus estimate. Revenue for the period jumped by an impressive 123%, to $12.7 billion, miles ahead of the $10.42 billion analyst forecast. The results meant a significant bump in Supermicro’s bottom line, with the company recording a net profit of $401 million, up from $168 million in the year-ago period.

For the current quarter, Supermicro said it’s anticipating revenue of at least $12.3 billion, way ahead of the Street’s target of $10.2 billion. It’s also looking for earnings of 60 cents per share, well ahead of the 52-cent consensus estimate.

The strong outlook indicates that Supermicro is making progress in its efforts to control the costs associated with getting its high-powered servers into customers’ hands and getting better at predicting when its deals will close. In October, the company upset investors when it issued preliminary first-quarter results that fell short of expectations, blaming the shortfall on delayed contracts. But those contracts rolled into the second quarter, boosting its results this time around.

Supermicro founder and Chief Executive Charles Liang (pictured) told analysts that the company is well-placed to capture the next wave of AI and information technology infrastructure demand. “We are scaling rapidly to support large AI and enterprise deployments while continuing to strengthen our operational and financial execution,” he added.

The company is now expecting its full-year revenue to top $40 billion, up from its earlier guidance of $36 billion. The market reacted positively to the report, and Supermicro’s stock rose more than 7% in the after-hours trading session.

Along with Dell Technologies Inc., Supermicro has become one of the main beneficiaries of the AI boom. EMarketer analyst Gadjo Sevilla told Reuters that its growth is thanks to the fact that it works so closely with chip designers like Nvidia Corp. and Advanced Micro Devices Inc. to bring powerful integrated servers to market. He said it has secured multiple long-term engagements and carefully aligned its inventory to those customer’s rollout timelines, ensuring demand is met before production in order to minimize volatility.

However, the company has struggled with its margins amid intense competition from other server makers that are all competing for a piece of the AI market pie. It’s notable that while Supermicro showed excellent growth, its bottom line was unable to keep pace with this, signaling that the premium paid for AI servers is now a part of history, said Holger Mueller of Constellation Research. “Price competition for AI servers is getting more fierce, and while Supermicro’s revenue was up by over 100%, its profit only grew by 25%,” the analyst noted. “Luckily, Charles Liang and team project a flat quarter, because if it followed the same revenue and cost curves, it might lose money in the next quarter due to the high costs of sale. This is something to keep an eye on in the next quarter.”

Woo Jin Ho, an analyst with Bloomberg Intelligence, agreed that the company still has issues. He said Supermicro’s revenue beat was primarily thanks to better sales execution than before. “Yet, the company’s margin isn’t improving, and the earnings per share projection implies a sub-7% gross margin for quarter three and potentially the year,” he added.

The company has not yet fully recovered from the controversy that emerged when it missed an August 2024 deadline to file its annual financial report. It failed to do so because its auditor Ernst & Young LLP resigned, citing concerns over the server maker’s governance and transparency. Faced with the threat of a delisting, the company did ultimately manage to file its financial statements just hours before an extended deadline was up. But last year, it warned shareholders that it had uncovered yet more issues with its financial controls.

In August, officials revealed that they had begun remediation efforts to address a “material weakness” in its controls, but warned that it may see additional accounting problems arise in future.

Photo: Supermicro