Goldman Sachs has downgraded super micro computer (SMCI) to Sell from Neutral, cutting its price target from $40 to $32, which implies a 24% downside over the next 12 months. The firm cites intensifying AI server competition and gross margin pressure as key risks that could weigh on Super Micro's growth.

Super Micro's 38% year-to-date rally has made it the best-performing stock in Goldman's hardware coverage, significantly outpacing the S&P 500's 3% decline. However, analyst Michael Ng believes the risk-reward is now unfavorable, stating, "SMCI stock is up 38% year-to-date, making it the best performing stock in our Hardware coverage; with the stock trading at 16X F2025E P/E, we view risk-reward as unfavorable given downside risks on valuation, competition, and gross margins."

The AI server market is becoming increasingly competitive, with rivals ramping up R&D spending, leading to reduced product differentiation. Ng sees this as a major threat to Super Micro's market share, particularly as OEMs and ODMs continue to gain traction in the sector. This puts Super Micro's ambitious $40 billion revenue forecast for FY26 at risk, as the company's growth projections rely on regaining its leadership position in upcoming GPU product cycles, including Blackwell, Blackwell Ultra, and Rubin.

Margin pressure is another growing concern. goldman sachs forecasts Super Micro's gross margins will decline to 12.2% in 2025 and 11.7% in 2026, as increased supplier and customer concentration risks, along with investments in new product features, weigh on profitability. While super micro currently trades at a premium valuation (12x NTM+1 P/E) compared to peers like Dell (9x), Goldman expects this gap to narrow due to the lack of differentiation in AI server products and ongoing competitive pressures.

Super Micro remains a controversial stock on Wall Street, partly due to its history of late financial reporting. Out of 14 analysts covering the stock, only five rate it a Buy, while eight have a Hold rating. However, despite Goldman's bearish outlook, the stock's average target remains around $53, suggesting a 25% upside from Friday's close.

The downgrade follows a similar note from JP Morgan analyst Samit Chatterjee last week, warning that Super Micro's EPS growth may lag revenue growth due to margin pressures in FY26.