SMCI is a hypergrowth, high-quality, low-risk Electronic Computers company. The company demonstrates healthy revenue growth (69.9% CAGR) with improving profitability — the hallmark of a well-managed franchise. Strong capital efficiency (ROIC: 21.4%) suggests durable competitive advantages that protect against new entrants. However, the composite health score of 37/100 signals fundamental weakness across multiple dimensions. In technology, product cycle timing and TAM expansion define the asymmetry of outcomes — the investment case is balanced between opportunities and risks.
Why this works
The bull case exists but is not the primary narrative for this stock right now.
Jump to section
Sector: Technology | Industry: Electronic Computers
▸ Compounder — Growing revenue, high ROIC, stable/expanding margins
Final Verdict: ▼ UNDERWEIGHT (Conviction Score: 33/100)
SMCI competes in the technology sector — an industry defined by rapid innovation cycles, winner-take-most dynamics, and high R&D intensity. The pace of AI adoption, cloud migration, and enterprise digital transformation continues to reshape competitive moats. Companies that fail to invest in next-generation platforms risk commoditization, while those that lead tend to earn outsized returns on capital.
SMCI is currently positioned as a hypergrowth, high-quality asset. With TTM revenue of $44.3B, the company continues to demonstrate exceptional top-line momentum (69.9% CAGR). Margins are expanding modestly (+1.8pp operating margin).
Quarterly Momentum:
Composite Scorecard:
| Dimension | Score | Assessment |
|---|---|---|
| Overall Health | 37/100 | Weak |
| Quality Focus | 31/100 | Low |
| Safety | 55/100 | Moderate |
| Durability | 37/100 | Fragile |
| Shareholder Value | 40/100 | Poor |
SMCI's growth profile remains aggressive and structurally sound:
Revenue Growth: The company is maintaining a staggering 69.9% CAGR, with TTM revenue reaching $44.3B.
Margin Expansion: Margins remain stable. Operating margins have expanded by 1.8pp to the current level, while Gross Margins declined by 7.4pp. Five-year margin expansion: +3.4pp.
Cash Flow Generation: The company generated $1.2B in Free Cash Flow, resulting in a thin FCF margin of -0.4%. FCF CAGR (5Y): 11.2%.
Earnings quality analysis — the discipline of separating sustainable cash-backed profits from accounting-driven earnings — is critical for long-term investment conviction. The "Quality" profile of SMCI is an area of concern:
Earnings Quality: Rated as Poor (low cash conversion), with an Operating Cash Flow to Net Income ratio of -6.0%. [!] Low cash conversion suggests earnings quality concerns.
Value Creation: ROIC stands at 21.4% (Δ+16.7pp), the company remains in a value-creation phase. 5-year average ROIC: 18.8%. vs. sector median: +9.3pp.
Accounting Integrity (Beneish M-Score): The M-Score of -2.14 indicates low risk of earnings manipulation. Notably, the score remains clean despite strong revenue growth — a positive signal that growth is being achieved without aggressive accounting practices.
Piotroski F-Score: 5/9 — Moderate financial health.
Solvency: The company is maintaining stable leverage. Debt-to-Equity stands at 0.00x, which is quite conservative
Liquidity: Current ratio of 1.70x indicates strong liquidity.
Bankruptcy Risk: The Altman Z-Score stands at 8.88. The company is in the 'Safe Zone' with minimal distress risk.
Refinancing Risk: Rated as Elevated (55/100). The company should be able to manage upcoming refinancing needs.
Fundamental Beta: 1.08 (above-market, P66). Slightly above-market systematic risk suggests the company will amplify broad market moves modestly.
Technology companies are growth-duration assets — their macro sensitivity runs primarily through discount rates and corporate capex budgets. Rising rates compress multiples while decelerating corporate spending reduces billings growth. SMCI exhibits a moderate sensitivity profile:
No macro sensitivity data available for this ticker.
Shareholder Returns: SMCI currently returns 16% of FCF to shareholders via dividends (0%) and buybacks (16%). The company prioritizes reinvestment over distributions — typical for high-growth companies where internal reinvestment earns above cost of capital returns.
Share Count: Relatively stable with +1.0% change.
Insider Sentiment: Heavy Selling. There has been net selling activity (approx. $1,868,220.914) by insiders like KAO GEORGE (SVP, OPERATIONS). The lack of recent insider buying is notable.
Within the Technology sector (Electronic Computers), SMCI ranks as follows:
Competitive Assessment: SMCI demonstrates sector-leading fundamentals, suggesting durable competitive advantages — whether through brand, scale, technology, or regulatory positioning — that justify a premium allocation within Technology exposure.
| Metric | Status | Rating |
|---|---|---|
| Growth | 69.9% CAGR | Exceptional |
| Quality | OCF/NI -6% | Poor |
| Risk | Z-Score 8.88 | Safe |
| Regime Fit | Unknown | Adequate |
| Composite Health | 37/100 | Weak |
| Sector Rank | 30th percentile | Below Median |
Synthesis: SMCI's fundamental profile within Technology (30th percentile) raises material concerns. A weak composite health score (37/100) signals broad-based deterioration. the current trajectory does not support conviction. Position sizing should reflect the elevated downside risk.
Verdict: ▼ UNDERWEIGHT
Conviction Score: 33/100
Recommended Action: Trim position. Move to underweight. Risks are material and not yet priced in.
Conviction Drivers: Positive: +ROIC, +ZScore, +LowLeverage | Negative: -Quality, -PoorEarningsQuality, -InsiderSelling, -CashBurn (anchored to Health: 37/100)
SMCI is a hypergrowth, high-quality, low-risk Electronic Computers company. The company demonstrates healthy revenue growth (69.9% CAGR) with improving profitability — the hallmark of a well-managed franchise. Strong capital efficiency (ROIC: 21.4%) suggests durable competitive advantages that protect against new entrants. However, the composite health score of 37/100 signals fundamental weakness across multiple dimensions. In technology, product cycle timing and TAM expansion define the asymmetry of outcomes — the investment case is balanced between opportunities and risks.
This investment memo for SMCI (Technology — Electronic Computers) was generated using quantitative analysis of 20 quarterly SEC filings spanning 2021-03 to 2025-12. Models applied: Beneish M-Score, Piotroski F-Score, Altman Z-Score, Fama-French factor analysis, composite health scoring (v2.1), macro regime sensitivity, insider activity analysis, and labor efficiency metrics. Latest filing: 2025-12-31. All data sourced from SEC EDGAR XBRL filings.
Institutional, 13F Holdings & Large Shareholder Filings
| Fund | Shares | Value |
|---|---|---|
| Vanguard Group | 68.0M | $2.0T |
Bankruptcy risk — annual evolution
Earnings manipulation — annual evolution
Last 90 days
| Company | Health | Growth | |
|---|---|---|---|
SMCI Current | 37 | — | |
AAPL Apple Inc. | 63 | 52.9% | |
DELL Dell Technologies Inc. | 34 | -9.3% | |
OMCL OMNICELL, INC. | 19 | 6.9% |