Written by: Rita
Super Micro Computer (SMCI) expects first-quarter revenue of $18.5 billion to $19.5 billion, approximately 27% above the midpoint of prior guidance; gross margin of 12% to 12.5%, 165 basis points above the midpoint of prior guidance. Goldman Sachs believes stronger-than-expected results are driven by robust demand for AI platforms and favorable customer product mix, but maintains a Sell rating with a target price of $34, only 4.7% above the October 20 closing price of $32.47.
In a report released on October 20, 2026, Goldman Sachs noted that SMCI provided a pre-announcement for first-quarter revenue of $18.5 billion to $19.5 billion, up from its previous guidance of $14.5 billion to $15.5 billion; both Goldman Sachs and FactSet had expected $15 billion. Gross margin came in at 12% to 12.5%, compared to the prior guidance of 10.4% to 10.8%. The revenue upside was primarily driven by demand for AI platforms, while the gross margin improvement was largely due to a favorable mix of customers and products. SMCI did not update its fiscal 2027 guidance, which had previously been set at total revenue of $65 billion to $72 billion.
Pre-announcement exceeded expectations, yet the rating is sell—disagreement lies in valuation. Goldman Sachs believes the stock will rise on the pre-announcement, but the current price is already near its $34 target, leaving limited upside. SMCI mentioned a cash conversion cycle of 149 days last quarter, suggesting external financing may be needed to reach $80 billion in revenue. The tension between strong demand and financing capacity will determine how far SMCI can go.
Revenue exceeded the midpoint of guidance by 27%.
SMCI's first-quarter revenue guidance is $18.5 billion to $19.5 billion, with a midpoint of $19 billion, representing a 26.7% increase over the original guidance midpoint of $15 billion. Both Goldman Sachs and FactSet had consensus estimates of $15 billion, making the actual pre-announcement approximately 27% higher than consensus.
Revenue exceeded expectations due to strong demand for AI platforms. Goldman Sachs noted that SMCI experienced robust demand for AI platforms in the September quarter, supported by favorable customer and product mix, driving both revenue and gross margin to surpass expectations. SMCI did not update its fiscal 2027 guidance, previously set at $65 billion to $72 billion. The pre-announcement provided only first-quarter figures; full-year guidance will be updated during the earnings call on November 3.
Goldman Sachs believes that the significantly higher-than-expected pre-announcement revenue indicates that demand for AI servers has not slowed. SMCI’s customers include hyperscalers, new cloud providers, and enterprises, with AI platform demand spanning both training and inference. The midpoint of revenue at $19 billion is 27% above consensus estimates—a margin uncommon among hardware companies.
The increase in gross margin is due to improved product mix.
Gross margin of 12% to 12.5%, with a midpoint of 12.25%, exceeding the original guidance midpoint of 10.6% by 165 basis points, or 1.65 percentage points. Goldman Sachs noted that the higher-than-expected gross margin was driven by favorable customer and product mix, with increased contribution from the AI platform.
SMCI's original gross margin guidance was 10.4% to 10.8%; the pre-announcement revised it to 12.0% to 12.5%, with the upper limit of 12.5% representing a 170-basis-point increase over the original upper limit of 10.8%. Goldman Sachs believes the primary drivers of the gross margin improvement are an enhanced customer mix and optimized product portfolio. AI platforms carry higher gross margins than traditional servers, and the shift from low-value orders to higher-value orders has contributed to the margin expansion.
The improvement in gross margin has a direct impact on profitability. Goldman Sachs noted that revenue exceeding expectations, combined with a gross margin above expectations, could result in first-quarter earnings significantly higher than previously anticipated. SMCI did not provide first-quarter earnings per share guidance; the full figures will be disclosed during the earnings call on November 3.
Dell's demand for AI servers has been confirmed.
SMCI's pre-announcement positively impacts Dell Technologies (DELL). Goldman Sachs believes that SMCI's strong AI platform demand in the September quarter indicates similar demand for AI servers at Dell. Dell's AI server sales target for fiscal year 2027 is $74 billion, and Goldman Sachs expects this target may be raised.
Dell's AI server sales target for fiscal year 2027, ending January 2027, is $74 billion. Goldman Sachs maintains a Buy rating on Dell with a price target of $461.56. SMCI's pre-announcement indicates strong demand for AI servers, suggesting Dell's AI server target may be conservative.
Goldman Sachs noted that SMCI and Dell are competing in the AI server market, but demand is strong enough for both to benefit. SMCI’s customer base is skewed toward new cloud providers and enterprises, while Dell’s customer base is more focused on enterprises and government entities. As demand for AI servers expands, orders for both companies are increasing.
The sell rating reflects that the valuation is near the target.
Goldman Sachs maintains a Sell rating on SMCI with a 12-month target price of $34, based on 7.5 times the sum of next 12 months and one-year forward EPS. The current stock price is $32.47, making the target price 4.7% above the current level. Goldman Sachs believes that while the pre-announcement was positive and may lift the stock price, valuation is already near the target, leaving limited upside potential.
Upside risks include stronger-than-expected demand for AI servers, increased market share, improved core operating margins, and customer diversification. Goldman Sachs noted that these risks could push the stock price above the target price, but the current valuation already reflects considerable optimism.
Last quarter, SMCI mentioned a cash conversion cycle of 149 days and indicated that revenue exceeding $80 billion may require external financing. Goldman Sachs believes that rapid revenue growth and high working capital demands make external financing capability critical to SMCI’s ability to continue exceeding expectations. The pre-announcement did not disclose any financing arrangements; the November 3 earnings call will be a key observation point.
Goldman Sachs maintains a Sell rating on SMCI with a price target of $34. The pre-announcement confirms strong demand for AI servers, but valuation is near the target price, leaving limited upside potential. Whether SMCI can secure external financing before revenue exceeds $80 billion will be key to whether the stock can surpass the target price.
Disclaimer
This article is a compilation and interpretation by Chaoxiang Research of a third-party brokerage research report (Goldman Sachs, October 20, 2026), combined with publicly available market information. The ratings, price targets, earnings forecasts, and related judgments cited herein reflect the views of the brokerage's analysts and represent the position of their respective institution; they do not reflect the views of Chaoxiang Research nor constitute any investment advice.
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