Supermicro (SMCI) beat Q1 earnings estimates on large AI deployments and raised its outlook.

Super Micro Computer, Inc. (SMCI) reported first-quarter fiscal 2027 non-GAAP earnings of $1.81 per share, beating the Zacks Consensus Estimate of $1.24 by 45.97%. The bottom line increased 417.1% year over year.

Net sales surged 297.5% year over year to $19.95 billion, surpassing the consensus estimate by 26.46%. Revenues also rose 79.4% sequentially. Strong AI data center deployments fueled the increase, with AI-related solutions accounting for approximately 71% of quarterly sales.

**SMCI's Large AI Projects Drive Revenue Growth**

OEM appliance and large data center revenues reached $14.7 billion, up 321% year over year and 167% sequentially. These operations contributed 74% of total revenues, supported by production ramps on several major AI data center projects.

Enterprise and channel revenues totaled $4.9 billion, an increase of 229% from the year-ago quarter but a decline of 12% sequentially. This business represented 25% of revenues. Around $2.3 billion of quarterly sales came from deployments originally scheduled for earlier periods, putting underlying revenues at approximately $17.6 billion.

**Super Micro Computer's Customer Exposure Remains Concentrated**

One large data center customer accounted for 44% of quarterly revenues, compared with 28% in fiscal 2026. Two customers represented 49% and 17% of accounts receivable, respectively, at the end of September. Management expects concentration to remain elevated as major AI projects proceed.

The United States generated 80% of revenues, followed by Europe at 11%, Asia at 6% and the rest of the world at 3%. The company is also pursuing sovereign AI opportunities as governments and enterprises expand their infrastructure investments beyond the United States.

**SMCI's Gross Margin Rises Y/Y, Falls Sequentially**

Non-GAAP gross margin expanded 330 basis points year over year to 12.8%, exceeding management's prior guidance of 10.4% to 10.8%. However, it declined 480 basis points from the preceding quarter as sales shifted toward large AI deployments, which carry lower margins than the enterprise and channel business.

Non-GAAP operating expenses increased 89% year over year to $384 million, reflecting additional headcount and research and development spending. Despite the increase, non-GAAP operating margin reached 10.9%, supported by revenue growth that significantly outpaced expense growth.

**Super Micro Computer's Working Capital Efficiency Improves**

The cash conversion cycle shortened to 97 days from 149 days in the previous quarter. Inventory days fell to 74 from 119, while days sales outstanding decreased to 36 from 59. Customer prepayments helped fund higher receivables and inventory, with deferred revenues rising by approximately $3.1 billion during the quarter.

Cash used in operations totaled $434 million, compared with $918 million a year earlier. Capital expenditures and investments were $47 million, resulting in negative free cash flow of approximately $481 million. The company ended September with $6.9 billion in cash, $15.1 billion in inventory and $8.6 billion in bank borrowings and convertible notes.

**SMCI Expands DCBBS and AI Manufacturing Capacity**

Super Micro Computer is broadening its Data Center Building Block Solutions (DCBBS) offering beyond servers to include liquid cooling, networking, data center management software and on-site services. Its SuperCloud tools aim to simplify deployment and manage power, thermal performance and AI infrastructure operations.

The company targets capacity exceeding 8,000 racks per month by December 2026, including more than 4,000 direct liquid-cooled racks. It is expanding manufacturing in Silicon Valley and Taiwan while building out containerized data center production. New AI platforms include NVIDIA Vera Rubin systems, while partnerships with Cisco, NetApp and Nutanix extend its enterprise reach.

**Super Micro Computer Raises FY27 Sales Forecast**

For the second quarter of fiscal 2027, management expects sales of $19.5 billion to $21.5 billion and non-GAAP diluted earnings of $1.66 to $1.90 per share. Gross margin is projected at 12% to 12.5%, reflecting continued shifts in customer and product mix.

For fiscal 2027, Super Micro Computer raised its revenue outlook to $72 billion to $82 billion, up from $65 billion to $72 billion. It anticipates a full-year gross margin of 11.8% to 12.2%. Management cited stronger visibility into customer deployment schedules but flagged component shortages, power availability and data center readiness as constraints on delivery timing.

**Zacks Rank and Related Stocks**

SMCI currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader Zacks Computer and Technology sector include Advanced Energy Industries (AEIS), Telos (TLS) and ASE Technology (ASX). Advanced Energy Industries, Telos and ASE Technology each currently carry a Zacks Rank #1 (Strong Buy).

Advanced Energy Industries shares have gained 13.8% year to date. The Zacks Consensus Estimate for the company's 2026 earnings indicates a year-over-year increase of 75%, and estimates have remained unchanged over the past 30 days.

Telos shares have gained 1% year to date. The Zacks Consensus Estimate for the company's 2026 earnings suggests a year-over-year rise of 66.7%, and estimates have been revised downward over the past 30 days.

ASE Technology's shares have surged 147.7% year to date. The Zacks Consensus Estimate for the company's 2026 earnings indicates year-over-year growth of 129.8%, and estimates have been revised upward over the past seven days.

*This article originally published on Zacks Investment Research (zacks.com).*