Charles Liang, CEO of Super Micro (Walid Berrazeg/Getty Images)

Super Micro sinks as Wall Street hates its trade-off of profitability for sales

Companies tied to the AI boom generally get rewarded for aggressively expanding capacity. That’s not the story this time.

Luke Kawa

11/5/25 8:21AM

Throughout the AI boom, investing aggressively in your near-term capabilities for the promise of bigger profits down the road has generally been applauded by investors.

Not so for Super Micro Computer, at least this quarter.

Shares of the server company are getting whacked this morning after its fiscal Q1 earnings report, where management delivered a much better Q2 sales outlook than analysts had anticipated, but with weaker-than-expected guidance for earnings per share. Profitability is taking a hit as the company offers preferential pricing to bigger customers and then looks to bolster its capacity to meet those huge orders, with hopes of many more to come.

“The company is placing greater investment for a strategic mega-scale AI win and expects margin to improve as it leverages investments,” Bloomberg Intelligence senior industry analyst Woo Jin Ho wrote. “This is no guarantee, as Super Micro didn’t provide a full-year margin outlook.”

When you’re selling umbrellas during a rain storm, you’re not only supposed to be able to sell more of them, but it’s also presumed that you’re able to display some decent pricing power that supports profitability.

Dell and Super Micro are both server companies looking to hitch their wagons to the explosive growth of AI. Their margin outlooks are heading in different directions.

“Supermicro received its largest design award in the company’s history, which is leading to better than expected revenue in F2Q26 and FY26,” Needham analyst N. Quinn Bolton wrote. “However, this program is expected to compress gross margin in the near term due to higher costs associated with the initial ramp along with lower margins this design award carries.”

Bolton cut his price target on the stock to $51 from $60. JPMorgan also reduced its price target to $40 (from $43), while Rosenblatt lowered its view of where shares are going to $55 from $60.

Not only this big contract, but also new production facilities that are being brought online to meet increased demand are expected to weigh on margins in the near term. To continue the analogy, to be able to sell umbrellas in a persistent downpour, you also need to be able to produce a lot of what people want to provide shelter from the storm.

During the conference call, executives were inundated with questions about the margin outlook.

“We’re going into a quarter where we are ramping one of the largest clusters in the world,” said CFO David Weigand. “We are ramping a new product line at mega scale. And so therefore, we were being a little conservative on the margin because we will have a higher cost as we ramp production and shipment.”

CEO Charles Liang said that a double-digit gross margin is still in Super Micro’s plans; it’s just going to “take a little bit longer.”

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Stocks rise for the third-consecutive session, erasing December losses

Santa baby, just slip a rally under the tree...

CHICAGO, ILLINOIS - DECEMBER 23: Benny the Bull, the Chicago Bulls mascot, dresses as Santa Claus in the game against the Milwaukee Bucks during the second half at the United Center on December 23, 2024 in Chicago, Illinois.

Matt Phillips7h

‘Golden age of profit margins’ seen in 2026

Wall Street tends to be a pretty optimistic place. But on one measure, market watchers are the most optimistic on record.

FactSet data shows the consensus estimate for S&P 500 net profit margins in calendar year 2026 calls for the gauge to climb to 13.9% in 2026.

But if borne out by events next year “it will mark the highest (annual) net profit margin reported by the index since FactSet began tracking this metric in 2008,” wrote John Butters, senior earnings analyst at the financial data company.

A recent story from Barron’s also commented on the expectations for especially fat profit margins embedded into forecasts for next year.

“We are in the golden age of margins,” RBC’s Capital Markets’ head of US equity strategy, Lori Calvasina, told the magazine.

That’s good news for investors looking forward to next year. But the follow up question, of course, is where the growth in profitability is expected to come from. The answer, as you might have guessed, is tech. Though the precise mechanisms by which those profits land in the coffers of the giant tech firms remains something of a mystery. Barron’s doesn’t get into the details, saying “call it benefits from AI, pricing power, or whatever.”

That doesn’t exactly sound like money in the bank. But even die-hard haters of AI have to acknowledge that betting against the ability of giant tech companies to generate massive profit growth has been a bad trade for the last couple decades.

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A recent story from Barron’s also commented on the expectations for especially fat profit margins embedded into forecasts for next year.

“We are in the golden age of margins,” RBC’s Capital Markets’ head of US equity strategy, Lori Calvasina, told the magazine.

Luke Kawa8h

Opendoor rises after CEO Kaz Nejatian touts an explosion in its home-buying footprint

Opendoor Technologies gained in early trading after CEO Kaz Nejatian touted an explosion in the company’s home-buying footprint.

In a message on X, the former Shopify COO posted two maps: one of which depicts a fairly limited area in which the online real estate company would buy or sell homes, and the second of which suggests that has now expanded to include the entire lower 48:

Big launch week at @Opendoor.

ZIP codes where @Opendoor buys homes. pic.twitter.com/UplMd4sXJE
— Kaz Nejatian (@CanadaKaz) December 22, 2025

In a follow-up tweet, Nejatian attributed the gains to AI, writing, “First pic took 10 *years* of work without AI. Second pic took 10 *weeks* of work with AI.”

On his first earnings call as CEO, Nejatian said the company had adopted a “default to AI approach.”

One of his first pledges was to launch Opendoor everywhere in the lower 48.

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Hertz surges on bullish options activity

As millions begrudgingly make their way to the rental car counter amid the winter holidays, investors are pouring into calls and sending Hertz stock soaring.

As of 10:51 a.m. eastern, Hertz had seen 17,861 calls traded. That’s already significantly ahead of the 20-day average volume of 12,956. Hertz shares are up more than 12%.

Seemingly juicing the rally was a post on X that read “car rental companies could end up being the picks and shovels of autonomy” that was reposted by billionaire Bill Ackman, whose hedge fund is one of Hertz’s largest shareholders.

If Hertz’s price action holds, the move will mark its ninth-best trading day of 2025.

Luke Kawa9h

POET Technologies jumps on elevated call activity

Optical communications company POET Technologies is up double digits in early trading on Monday as this potential supporting player in the AI boom gets a bid from the options market.

Just an hour after the opening bell sounded, call volumes are already running well above their five-session average for a full day.

The stock became a retail favorite in early Q4 right before many speculative trades began to retreat, with record call volumes of nearly 600,000 on October 7. The last big bump in options activity came on December 3, the session after Marvell’s acquisition of Celestial AI, a customer of POET, offered some validation for its technology as a data center solution.