Super Micro Computer (SMCI)

By both methods, the value today (DCF $165 · Multiples $137) exceeds the market price ($40).

Today — with margin of safety: at $40 trades ~70.9% below its value discounted to today (~$137) — the wide discount we require (≥38%, equivalent to a ~15% annual return); the risk is covered by the margin, not the rate.

At 5 years — Muy infravalorado: the target price ($171) plus dividends yield above the required average return (10%) — the business compounds.

The bridge: the return at 5 years comfortably exceeds the risk-free rate (4.5%) — and the discount reaches the required margin of safety.

Educational / informational. Does not constitute investment advice.

The inverse approach: instead of projecting growth to obtain the value, the market price ($40) is taken as given and it solves for what annual owner-earnings growth would need to hold for 5 years for the present value —at the method's rate (4.5%, no-growth terminal)— to equal that price. It is the disconfirmation test: the expectations the price already pays for, contrasted against the method's projection.

The market discounts less growth (-9.0%/year) than we project (20.0%/year) → if the base case holds, there is margin: perception is more pessimistic than the estimated reality.

That growth implies ~$1.4 bn of owner earnings in year 5 (vs ~$5.4 bn of our base case). It recalculates if the DCF assumptions are edited.

Year-by-year projection of the selected scenario. From each year, two versions of the flow are derived: growth FCF (operating flow − total capex, the cash surplus) and maintenance FCF (the owner earnings: what the business yields if it only sustains its capacity). The flow is returned almost in full (dividend + buyback) or redeployed into the operation, so that EV stays roughly flat and multiples compress because the metric grows, not because of cash accumulation. The valuation is done on EBIT (EV/EBIT). In edit mode, revenue, margins, capex, and exit multiples can be adjusted.

Year-0 is the full fiscal 2026, closed on June 30, 2026 (revenue US$39,063 million, EBIT US$2,770 million, net income US$2,230 million), incorporated from the 10-K filed on August 31, 2026. Because the fiscal close coincides with the grid's year-0, the +1y window is exactly fiscal 2027 and the company's guidance no longer needs approximation: the three scenarios anchor to the extremes of the guided revenue range (adverse US$65,000 million, base at the midpoint of US$68,500 million, favorable US$72,000 million), and from there each path decays at its own pace to terminals of ~6%, ~11% and ~15% at year 5. The guidance's second anchor confirms the margin: fiscal 2027's first quarter is guided with revenue of US$14,500 to 15,500 million and diluted earnings per share of US$0.89 to 0.98 with a tax rate of ~20.1%, implying an operating margin of ~6.7%, below the 7.09% of the closed fiscal year; that is why the base case models year 1 flat at 7.0% and only then expands toward a 9.5% terminal through operating leverage, without extrapolating fiscal 2026's fourth-quarter one-time 13.4% peak. The valuation metric is EV/EBIT rather than owner earnings or net income, because this company's working capital swings extremely and recurrently with the inventory cycle: operating cash flow was negative in three of the last five fiscal years and consumed US$9,506 million in fiscal 2026, which distorts any cash metric as an anchor for a business that is operationally profitable and expanding. For the same reason the surplus does not accumulate cash: it is redeployed into the working capital that the revenue path itself requires. The share count deserves explanation because it changed in nature during the fiscal year: the company issued US$1,407 million of common stock (the count went from 601.4 to 656.9 million) and US$4,312.5 million of 7% mandatory convertible preferred stock, which converts automatically on June 1, 2029. Above the US$32.9989 threshold price the rate is 30.3040 shares per preferred, or 130.7 million new shares on top of the current 656.9 million; the model's share path incorporates that conversion starting in year 3 across all three scenarios, because it is not a capital-return policy but a contracted fact. The convertible notes, by contrast, are counted once and on the other side: their US$4,664 million is subtracted in full as debt, so their 73.8 million conversion shares do not enter the denominator. The base exit multiple (9x, within the equipment-manufacturing [8,12] band) reflects a moat that the company itself acknowledges as narrow and eroding against better-resourced competitors and low-cost assemblers, and a concentration that deepened until a single customer accounted for 28.1% of the fiscal year's sales.

Today's elevated multiple is the price of growth: if the business grows, the entry point cheapens on its own going forward (the metric grows while EV stays roughly flat). The exit multiple at 3 years is higher than the terminal at 5 years —at 3 years there is more growth still ahead—, so the value curve shows whether value creation is concentrated in the early or the later years. The required return is applied to the base scenario.

They are valued separately, with their own rationale, and are not incorporated into the base or the verdict (they are excess return). When assigning them value — in Editmode —, the total with optionalities updates live, without moving the base.

The verdict, the base CAGR, and the margin of safety are always calculated on the base; optionalities do not alter them (with optionalities at $0 they do not move).

Each card fixes a required annual return and answers: if the business is worth $171 in 5 years, what is the maximum that can be paid today to obtain that return? Since it now trades at $40, the margin of safety is how much cheaper the market is than that maximum. The three thresholds: 4% covers inflation (the floor), 10% is the long-term average return, and 15% is the level of a great investment.

With a target price of $171 in 5 years and a required return of 4.5% annually, the maximum to pay today is $137. Against the current market price ($40), the margin of safety is 70.9% (trades below the maximum → there is margin) and the total return at that price would be 33.7% annually.

• Low entry multiple. Trades below 1 times TTM revenue, below the sector's typical range.
• Corporate-governance discount. The discount appears anchored in regulatory and internal-control risk, not in business demand.
• Margin of safety. There is a margin of safety: the market's perception is meaningfully worse than reality.
• Sensitivity to the terminal multiple. The 5-year value is sensitive to the exit multiple chosen within the hardware-oem band.

Each margin over sales, year by year: historical (solid line) → projection (dotted).

• ✓ ROIC exceeds the cost of capital (~10%)
• ✕ CFROIC backs up the ROIC (-330%, cash vs. accruals)
• ✓ Healthy balance sheet (low corporate debt)
• ✓ Durable competitive moat (multiple advantages)

• Operating cash generation. Negative operating cash flow in three of the last five fiscal years due to the inventory cycle.
• Return on capital. Hovers around the 10% bar without comfortably clearing it, distorted by recently raised capital.
• Reinvestment runway. AI infrastructure demand offers a long reinvestment runway if the capex cycle continues.
• Maintenance vs growth capex. Capex grew above depreciation, consistent with capacity for the guided growth.

Annual levels from the official filing (10-K); the % over each bar is the year-over-year (YoY) growth vs the prior year.

The central driver is product mix: GPU systems and full racks for artificial intelligence shift billings toward units with a higher average selling price. In fiscal 2026 that shift took operating margin from 5.7% to 7.09%, with the fourth quarter at 13.4%, but fiscal 2027 first-quarter guidance implies returning to ~6.7%, so the quarterly peak reads as one period's favorable mix rather than the business's new level.

The % are the annual (year-over-year) growth: each year —historical and projected— vs the prior one; the TTM (trailing 12m) vs the TTM of a year ago, to avoid overlapping windows. The historicals are exact figures from the official filings; the projected years come from the year-by-year model (the intermediate years without their own series are interpolated between the anchors). The projected columns (+1y…+5y) are 12-month windows counted from the TTM close (30-jun-2026): the projection starts from the most recently reported data, not the fiscal year. The projected base is realistic and unbiased — the risk discount is applied at the end, via the required return. The rationale for each metric is in the (i).

• Recent acceleration. The fourth quarter of FY2026 nearly doubled revenue from the same quarter of FY2025.
• Backlog visibility. More than $60,000M in new orders back the FY2027 guidance.
• Dependence on the AI cycle. Growth is tied to the continuation of hyperscalers' AI infrastructure spending.
• Projected deceleration. The base case decays from ~80% to ~11% year-over-year growth by year 5.

• Guided revenue growth. FY2027 guided at $65,000-72,000M after FY2026's $39,100M (+78%).
• Rising customer concentration. Four customers each represented 10% or more of sales in FY2025.
• Time-to-market advantage. Proprietary modular architecture enables fast assembly of each new GPU generation.
• Competitive commoditization. Lower-cost original design manufacturers increasingly compete with their own brands.
• Geographic manufacturing diversification. Plants in the United States, Taiwan, the Netherlands, and Malaysia.

Not all debt is equal: only the structural needs refinancing; the rest is operational (self-liquidating).

Structural debt is what is exposed to the contraction phase of the cycle; operational debt (leases, matched funding) self-liquidates with the business.

• !Leverage (net debt / EBITDA)Net debt / EBITDA 2.0x
• ✓Interest coverage (EBIT / interest)14.2x
• –Liquidity (current ratio)no data
• ✕Cash quality (CFROIC vs ROIC)CFROIC backs -330% of ROIC
• !Value creation (ROIC − 10% bar)+4pp
• !Malinvestment test (capex vs incremental ROIC)Capex/D&A 3.0x
• !Float / working capitalConsumes cash $9.5 bn (positive WC)
• !Dilution (SBC % of revenue + shares)SBC 1.1% of revenue

A traffic-light interpreted by the method (not generic): float (negative WC) adds up, capex is judged by incremental ROIC (malinvestment test), and a lender is not subjected to corporate solvency. The (i) shows the derivation of each number.

• Cash position. $7,521M in cash and equivalents at the close of FY2026.
• Growing leverage. Total debt of $8,720M following the convertible issuances in FY2025-FY2026.
• Dependence on external funding. Negative operating cash flow forces continued debt or equity issuance to fund inventory.
• Recent dilution. Issuance of $1,407M in common stock and $4,231M in convertible preferred stock in FY2026.

• Concentration of power. The founder simultaneously holds the executive presidency and the chairmanship of the board.
• Internal control history. Material weaknesses acknowledged at the close of FY2025 and late SEC filings.
• Capital allocation. Capital directed almost entirely to funding growth working capital, with no dividend.
• Ongoing investigation. The board's special committee is investigating transactions related to export controls.

• Motivated sellers: a history of noncompliance in SEC reporting (the fiscal 2024 10-K and two 10-Qs filed late) and acknowledged material weaknesses in internal controls, which generated sustained, documented downward pressure on the stock price.
• Missing buyers: the board special committee's ongoing investigation into export controls keeps institutional investors on the sidelines, preferring to wait for its resolution before taking a position.
• Extreme volatility in quarterly results under generally accepted accounting principles (fiscal 2026's fourth-quarter operating margin was 13.4% against 7.09% for the full fiscal year) makes it hard for the market to distinguish noise from trend, which penalizes the multiple through excess caution.

The stock trades at about 0.6 times fiscal 2026 revenue despite guidance that nearly doubles that revenue and is backed by more than US$60,000 million in new orders; the discount appears anchored in corporate-governance risk and the already-contracted dilution, not in business demand.

The annual return (CAGR at 5 years) in each scenario, with the total period return below — the margin of safety made visual: upside range wide, downside range narrow.

Even in the bear scenario, the return holds at +7%/year (+41% total): the margin of safety protects the downside. The bull (+58%/year, +893% total) exceeds it comfortably — a favorable asymmetry, with a narrow downside range and a wide upside range.

• Regulatory investigation. Special committee investigating transactions related to export controls, with an uncertain outcome.
• Internal controls. Material weaknesses acknowledged at the close of FY2025.
• Customer concentration. Four customers each represented 10% or more of sales in FY2025.
• Lower-cost competition. Original design manufacturers with scale and lower cost compete for the same customers.
• Working capital volatility. Operating cash flow depends on the inventory cycle and can swing sharply between fiscal years.

Each thinker's analytical framework applied to our data.

• Buffett / Graham Quality + margin of safety

  Fails the quality gate: narrow moat, eroding.

• Peter Lynch Growth at a reasonable price (GARP)

  A hyper-growth growing 20% at a multiple/growth of 0.5 → cheap for its growth.

• Joel Greenblatt Cheap and high-return (Magic Formula)

  Earnings yield 9% (EBIT/EV) + ROIC 14% → brushes the Magic Formula.

• Howard Marks Perception vs reality + cycle

  The price discounts -9% vs our 20%: perception is more pessimistic than reality, with an identified source of the discount.

• Seth Klarman Capital protection (bear scenario)

  Bear-scenario floor +7%/yr, bull-scenario ceiling +58%/yr over 5y and a +71% margin → capital protected, asymmetry in your favor.

• Pat Dorsey Moat strength (Five Rules)

  A narrow moat, eroding; sources: intangibles, efficient scale, cost advantage → fails the Five Rules.

• Aswath Damodaran Expectations implied by the price

  Justifying the price requires discounting -9%, within what we project (20%) — the story squares with the numbers.