Super Micro Computer (NASDAQ: SMCI) shares fell more than 5% intraday on Tuesday after Goldman Sachs initiated coverage with a Sell rating and a $26 price target.

Goldman assumed coverage with a valuation based on 9x next-twelve-month-plus-one-year earnings, down from a prior implied valuation of $34 at 11x. The firm acknowledged Super Micro's leadership position in the AI server market, particularly within tier-two cloud and neocloud customers, but cited limited visibility into margin improvement.

The analyst said profitability risks remained elevated as Super Micro continued to participate in margin-dilutive large-scale deals, faced increasing competition from original equipment manufacturers and original design manufacturers, and invested heavily in expanding its enterprise and sovereign go-to-market capabilities.

While consensus estimates had already reflected some margin pressure, Goldman Sachs warned that further downside to profitability was possible, which could constrain visibility into the company's forward earnings profile.