Super Micro Computer Inc HQ photo-by Tada Images via Shutterstock
Super Micro Computer (SMCI) has been a huge beneficiary of the massive demand for artificial intelligence (AI) servers. However, the company has hit a few speed bumps over the past year, causing it to lose some momentum. In fact, after weathering accounting controversies and dodging delisting fears, SMCI once again spooked investors, this time with a $2 billion convertible note offering set to mature in 2030.
While the funds are earmarked for “general corporate purposes,” including working capital expansion, the announcement rattled investors worried about dilution. The stock took a 9.8% hit on June 23 as concerns spread. In an attempt to soften the blow, the company allocated $200 million toward capped call transactions, a move designed to limit dilution, but the gesture wasn’t enough to calm the market.
So, with SMCI shares once again under pressure and uncertainty in the air, should you also consider selling the stock now?
California-based Super Micro Computer (SMCI), more commonly known as Supermicro, builds servers and storage technologies, which are used in cloud computing, AI, and for the operation of data centers. Supermicro’s reliable technology enables companies to process large amounts of data and run critical software.
As a trusted tech provider, the company’s customers include tech giants, cloud providers, and other enterprises. It has a market cap of $27.8 billion.
Since last year, Supermicro has been embroiled in drama. First, Hindenburg Research revealed a short position in the stock and accused Supermicro of accounting manipulation. Following that, the company was reported to be under investigation by the Department of Justice for accounting issues.
The biggest point of concern for investors was the fear it would be delisted from the Nasdaq Exchange after the company delayed filing its annual report following the departure of its auditor, EY. Thankfully, Supermicro was able to find a new auditor and filed its financials within the extension deadline. All this turmoil has resulted in considerable volatility in the company’s shares. Over the past 52 weeks, the stock has declined by 41%.
Just for comparison, the broader S&P 500 index ($SPX) has gained 12% over the same period. Supermicro’s stock reached a 52-week high of $96.33 in July 2024. It is down 49% from this high at the moment.
However, this year, the stock has regained some of the lost ground, as it is up by 61.4% year-to-date, due to regaining compliance.
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On May 6, Supermicro reported its fiscal 2025 third-quarter results. Its total revenue increased 19% from the prior year’s period to $4.6 billion. Despite this growth, the figure fell short of the analysts’ consensus estimate of $5.4 billion. This miss was fueled by Supermicro’s customers delaying some purchases due to uncertainty regarding transitions in AI platforms, such as Nvidia’s (NVDA) shift from its Hopper to Blackwell GPU infrastructure.
In Q3, Supermicro faced growing demand for server and storage systems, which is its majority segment. At the heart of this growth was the increasing demand for GPUs and high-performance computing (HPC). While there was a contraction in gross margin, Supermicro remains profitable. In Q3, the company reported a non-GAAP EPS of $0.31, down 53% year-over-year, and missing the consensus Wall Street estimate of $0.50.
The company expects its net sales for the fourth quarter to be in the range of $5.6 billion to $6.4 billion. While this projection fell short of Wall Street expectations, it is better than the $5.3 billion it had reported in Q4 of fiscal 2024. Supermicro expects its non-GAAP net income per share to be in the range of $0.40 to $0.50.
Analysts are still seeing considerable potential in Supermicro at the moment. Analysts at Mizuho, while maintaining a “Neutral” rating on the stock, raised the price target from $32 to $40. Mizuho expects the company to bolster its position in the AI server market.
In addition, Mizuho is optimistic about Supermicro’s partnership with DataVolt. The company announced a $20 billion partnership with Saudi Arabia-based DataVolt to supply ultra-dense GPU platforms and rack systems for DataVolt’s hyperscale AI campuses. This news was seen favorably by investors due to the potential gains from an expanding market and strategic ties.
Overall, Supermicro is still coveted on Wall Street, with analysts giving it a consensus “Moderate Buy” rating. Of the 16 analysts rating the stock, four analysts have rated it a “Strong Buy,” three suggest a “Moderate Buy,” seven analysts are taking the middle road with a “Hold” rating, while two rated it “Strong Sell.” The consensus price target of $45.13 is below its current trading price.
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While share dilution is a concern for Supermicro, the company is still generating profits, which may indicate that the new funding will be used to capitalize on some growth opportunities. Meanwhile, AI-fueled growth still remains robust. Hence, it might be too soon to give up on Supermicro.
On the date of publication, Anushka Mukherji did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com
