AI server stocks decline amid margin concerns and data center headwinds

Super Micro reported Q1 FY2027 revenue of $19.95 billion and earnings per share of $1.81, exceeding analyst expectations. The company anticipates sales between $19.5 billion and $21.5 billion for Q2 FY2027, surpassing the $16.35 billion estimate. Furthermore, Super Micro raised its FY2027 revenue outlook from $65 billion to $72 billion to $72 billion to $82 billion.

However, investors are scrutinizing the company’s profitability. Super Micro’s adjusted gross margin stood at 12.8%, slightly below the prior quarter, despite AI solutions accounting for 71% of revenue, up from 59%. The company’s CFO, Mark Long, projects a FY2027 gross margin of 11.8% to 12.2%, attributing the lower margin to the nature of large AI installations.

Notably, a single major data center customer represented 44% of Super Micro’s Q1 revenue, a situation the CFO attributed to the scale of current AI infrastructure development. Excluding $2.3 billion in revenue from previously delayed installations, the underlying revenue was $17.6 billion. The company’s operations resulted in a cash usage of $434 million during the quarter.

The recent elections have introduced additional concerns. Texas, a state slated to host over 25% of planned U.S. data center capacity by 2030, elected a governor who has proposed a moratorium on data center construction. Additionally, a tracker indicated that 28 ballot measures aimed at restricting data centers were on track to pass nationwide.

Dell’s stock has risen 201% year-to-date, and HPE’s has increased 109%, so the recent declines may reflect profit-taking or caution ahead of their upcoming earnings reports. Dell reported an AI server backlog of $95 billion and an Infrastructure Solutions Group operating margin of 15%.

Super Micro’s business model, which focuses on modular server systems and relies heavily on large AI installations, differentiates it from competitors. Dell’s broader revenue base, combining AI and traditional servers with storage and a PC business, and HPE’s focus on networking following the Juniper acquisition, offer different margin profiles.

The sustainability of Super Micro’s gross margin, currently in the 12% range, will be a key factor as the company expands its customer base. While demand exceeds component supply, concerns remain regarding customer concentration and potential limitations on data center construction.