SMCI面临结构性逆风，包括低毛利率（<11%）、价格竞争以及资本结构（优先股/债务）限制了股东价值创造。

And just to pin a name to this, we're talking about Super Micro Computer today. A few years ago, when we covered it in 2023 and 2024 we were critical of SMCI. We passed on it, and, well, the stock price tanked the second half of 2024, and never really meaningfully came back since then.

So let's go ahead and take a look at what's going on with Super Micro, because we're seeing some signs that this stock is going to get pumped here again. And if you think back to just a couple of months ago, back in June, they proposed this $7 billion equity and equity-linked financing transactions to fund AI orders.

They initiated an at the market, ATM, the really ironically acronymed ATM program, which they said they're not going to utilize anymore, at least not currently, as well as issued preferred stock, we'll come back to that in a moment, and took out some more debt in recent months as well, to fund the purchase of semiconductors and components needed to build those servers and fulfill orders to hyperscalers, data center operators, enterprise companies, you name it.

So item number one to call out, Supermicro's gross profit margin currently and for the next quarter guidance is supposedly at a trough, but it's at less than 11%. The guidance is at the midpoint, 10.6, 10.8 gross profit margin.

And you may look at this chart right here with total revenues for Super Micro, and you're thinking, wow, their revenues are growing significantly. But one of the issues that Nick just mentioned is that blue bar, the operating profit, not moving commensurate with that revenue that they're bringing in.

But looking at their free cash flow as well, you can see that they have spent most of the time free cash flow negative because they have to spend so much money on those parts that they're supplying their customers, and not getting that back in return.

Of course, this last quarter, they've made a little bit of headway again, free cash flow per share up as well. But over the long haul, this has been an issue. Well, accounts payable is money spent on semiconductors, GPUs, CPUs, networking, other various components. Those companies generally need to get paid. No money, no chips. Accounts receivable is the bill that Super Micro sends to its customers.

Well, one of the ways that Super Micro tries to compete with its peers like HPE, Dell, Lenovo, is they have much more generous payment terms for some of their customers. Maybe they drag it out for longer.

And just to call out, that's one of the reasons why their operating margin is a lot lower, is because they're competing significantly on price. That's something that Super Micro lacks. Again, this ultimately boils down to differences in business model, but that's an important thing for you to consider as a shareholder. This hasn't structurally changed yet for Super Micro, and that's going to be a headwind for the company's ability to sustainably generate positive free cash flow and grow free cash flow over the next few years, even as revenue goes through the roof because of the big boom in infrastructure and AI data center build-out.

In green, you see total cash had a huge bump in this most recent quarter to $7.5 billion. That's from some extra debt and sale of stock.

If you're looking at Super Micro Computer, you're not limited to just SMCI stock. That's not to say you should go out and buy SMCIP instead. But if you are looking at SMCI, this is another reason why the company is going to struggle to create value for you as a shareholder because that preferred stock gets paid first.

The debt holders get paid first via interest-bearing and dividend claims on the company's cash flows. And that preferred stock, again at 7%, is going to be a significant destination for any cash flow that Super Micro is able to generate.