Bernstein: Supermicro results and guidance beat expectations, but order conversion remains in focus

How much did first-quarter results beat expectations?

Supermicro's first-quarter revenue for fiscal 2027 was $19.95 billion, up 79% quarter over quarter and 298% year over year. It was 35% above Bernstein's estimate and 33% above market consensus, and exceeded the upper end of the company's preliminary range of $18.5 billion to $19.5 billion.
Operating income was $2.16 billion, 83% above Bernstein's estimate; earnings per share were $1.81, 67% above the firm's estimate. Bernstein believes the strong results validate the opportunity presented by AI infrastructure demand.

First-quarter gross margin was 12.8%, above market consensus of 10.8% but down 4.8 percentage points from the previous quarter. Revenue grew rapidly, while gross profit as a proportion of revenue fell quarter over quarter.
Adjusted free cash flow was negative $476 million, below market consensus of negative $233 million. Bernstein believes a significant improvement in working capital would help increase free cash flow and valuation.

The company expects second-quarter fiscal 2027 revenue of $19.5 billion to $21.5 billion, with a midpoint of $20.5 billion, approximately 3% above the first quarter and 24% above Bloomberg market consensus of $16.53 billion. The midpoint of earnings-per-share guidance is $1.78, roughly flat with the first quarter and above market consensus of $1.08.
The company's full-year fiscal 2027 guidance calls for revenue of $72 billion to $82 billion and a gross margin of 11.8% to 12.2%. At the revenue midpoint, the final three quarters would need to generate approximately $57.1 billion in total, averaging approximately $19 billion per quarter, close to the first-quarter revenue level.

Bernstein believes management credibility and the ability to cancel orders on hand could limit their eventual conversion into revenue. The firm wants to see broader improvements in execution before taking a more positive view.
The firm views the appointment of former Western Digital chief financial officer Mark Long as Supermicro's chief financial officer as a positive development that could strengthen financial oversight. Bernstein maintains its Market Perform rating and $42 price target, based on 12 times its forecast fiscal 2028 earnings per share of $3.53.