The Rise and Fall of Super Micro Computer Stock
Super Micro Computer, Inc. (SMCI) found itself riding the crest of the artificial intelligence (AI) wave, propelling its stock to unprecedented heights, reaching a record $1,229 in March. With a dazzling display of revenue growth and profit margins, the company outshone the S&P 500 Index, attracting investors like a moth to a flame.
Yet, just as swiftly as it ascended, the stock spiraled downwards. The announcement of a forthcoming 10-for-1 stock split stirred the pot for a rebound in October. Stock splits, akin to magnets, draw in investors by lowering share prices, enhancing accessibility, and historically implying a 25% to 30% boost in share value, a stark contrast to the S&P 500’s average annual returns of 10% to 12%. However, the euphoria was short-lived.
Dynamics of Super Micro Stock
With every peak comes a valley, and Super Micro Computer found itself amid a tempest this week. Reports by short seller Hindenburg Research rattled investors, leading to a 19% plunge in SMCI stock as the company deferred its annual Form 10-K filing with the SEC.
While the path ahead may seem fraught with uncertainty, some notable analysts maintain a cautious optimism towards the AI server provider. The stock’s current slump, hovering near yearly lows, beckons the daring question–is it time to dive into the fray before the split?
The Story Behind Super Micro Computer Stock
Established in 1993 and headquartered in San Jose, Super Micro Computer, Inc. (SMCI) has carved its niche as a $24.8 billion tech behemoth. Renowned for its liquid-cooling server and storage solutions, the company’s product spectrum ranges from modular blade servers to cutting-edge storage systems, aligning seamlessly with enterprise data centers, AI, and cloud computing.
Despite a meteoric start to the year, transitioning from a small-cap Russell 2000 Index component to a distinguished member of the S&P 500 and Nasdaq-100 Index, SMCI has experienced significant turbulence. With shares down by almost 64% from its peak in March, the stock displays a 56% surge in 2024 and a remarkable 73.8% growth over the past 52 weeks, surpassing the S&P 500’s performance on both fronts.
Super Micro’s Market Performance and Prospects
From a valuation standpoint, Super Micro is trading with a price-to-earnings (P/E) ratio of 21.52x, positioned at a discount relative to the tech sector median. Not to mention, sporting an attractive price/earnings-to-growth (PEG) ratio of 0.69x, the stock appears undervalued concerning its future growth trajectory.
A Bumpy Ride for Super Micro: Q4 Earnings Review
A turbulent journey awaited Super Micro following a lacking fiscal Q4 earnings report on August 7. Despite an awe-inspiring 143.6% annual revenue surge to $5.31 billion, surpassing analysts’ $5.30 billion projections, the EPS of $5.51 fell short by 27.1%, despite registering a 60.6% YoY growth.
The company’s gross margin plummeted to 11.2% from 17% year-on-year and 15.5% quarter-on-quarter, driven by a heightened share of lower-margin business from hyperscale data centers, alongside increased costs for Direct Liquid Cooling (DLC) components. Operating margins followed suit, slipping to 6.5% from 10.4%.
Further exacerbating the situation, supply chain woes and delayed shipments of Nvidia’s Blackwell systems loom over the company’s DLC solutions, amplifying margin pressures in the near term. Nonetheless, prospects for a gross margin rebound linger, with supply chain disruptions expected to smoothen out over the upcoming year. Management’s strategic focus on curbing manufacturing expenses from newly established plants in Malaysia and Taiwan, alongside ambitious expansion plans in the Americas and Europe, breathe a hopeful air into the company’s outlook.
Looking forward to fiscal Q1, Super Micro anticipates revenue ranging between $6 billion and $7 billion, marking a staggering 183% to 230% growth, while non-GAAP EPS is expected between $6.69 and $8.27. Smoke signals from management hint at a revenue projection of $26 billion to $30 billion in fiscal 2025, projecting a compelling 74% to 101% annual growth.
Analysts scrutinizing SMCI foresee an EPS of $28.50 in fiscal 2025, signaling a 41.9% annual uptick, with bottom-line growth slated to surge another 11% to $31.63 in fiscal 2026.
Deconstructing Super Micro’s Growth Trajectory
As the storm clouds gather over Super Micro Computer amidst the post-earnings downturn, accusations from short seller Hindenburg Research have cast a shadow over the company. The firm levied allegations of dubious accounting practices, export control violations, and unsettling customer affairs, all while disclosing a short position on SMCI stock.