Be careful of the "increasing revenue but not increasing profit" trap! Goldman Sachs Group, Inc. downgrades Super Micro Computer, Inc. (SMCI.US) to "sell": Profit margins are the key weakness.

Goldman Sachs Group, Inc. downgraded the stock rating of Super Micro Computer, Inc. (SMCI.US) to "sell." The analysts at the firm issued a warning that the ongoing declining profit margin trend of Super Micro Computer, Inc. may offset the positive impact of the strong growth in demand for artificial intelligence servers. Goldman Sachs Group, Inc. analyst Catherine Murphy lowered the target price for the stock from $34 per share to $26 per share for the next 12 months, noting that over the past three years, Super Micro Computer, Inc.'s profit margin has significantly decreased to 9.5%. She further added that due to the company seeking some large deals that may dilute profit margin, there remains significant uncertainty about its future profit potential. Goldman Sachs Group, Inc. analysis pointed out that Super Micro Computer, Inc. still holds a leading position in the artificial intelligence server market, especially in the sub-segment of second-tier cloud services. However, due to high supplier concentration, the company is facing structural pressures, with purchases from just one supplier accounting for as much as 64%. Murphy raised doubts about the feasibility of Super Micro Computer, Inc.'s expansion strategy through its Data Center Building Blocks platform. She noted that the current proportion of software business in the company's total revenue is less than 2%, and the size of its sales team still lags behind competitors significantly. The earnings forecast data for Super Micro Computer, Inc. given by Goldman Sachs Group, Inc. is 10% lower than the general market expectations. Meanwhile, Goldman Sachs Group, Inc. also issued a warning that even if Super Micro Computer, Inc. can maintain strong revenue growth, there is a possibility of further decline in profit margins.