Super Micro Computer, Inc. (SMCI) rode the AI wave to massive gains, becoming a standout supplier of AI-processing servers. The stock soared to a record high of $1,229 in March, outpacing the broader S&P 500 Index’s returns thanks to its impressive revenue and profit growth.
But as investors took profits, the company’s announcement of its first-ever 10-for-1 stock split, set for October, reignited interest in SMCI. Stock splits often act as magnets for investors, lowering share prices and making the stock more accessible to the broader investor base. Plus, historically, stock splits have led to an around 25% to 30% increase in share price, comparing very favorably with the S&P 500’s average annual return of around 10% to 12%.
The Rollercoaster Ride of Super Micro Computer Stock
Despite these concerns, some high-profile analysts remain cautiously optimistic on the AI server company. So, with SMCI stock hovering near year-to-date lows, is now the right time for investors to buy in ahead of the split? Let’s take a closer look.
About Super Micro Computer Stock
Founded in 1993 and based in San Jose, Super Micro Computer, Inc. (SMCI) has grown into a $24.8 billion tech giant. Known for its liquid-cooling server and storage solutions, SMCI crafts everything from modular blade servers to advanced storage systems. Catering to enterprise data centers, AI, and cloud computing, the company blends innovation with tailored customer support, positioning itself as a leader in the tech infrastructure arena.
SMCI started the year strong, graduating from a small-cap Russell 2000 Index component at the start of 2024 to a member of the S&P 500 in March and the Nasdaq-100 Index by July.
While SMCI shares are now down by nearly 64% from those March highs, SMCI remains up 56% in 2024 and 73.8% over the past 52 weeks, outperforming the S&P 500’s returns over both time frames.
Financial Standing and Recent Setbacks
From a valuation standpoint, Super Micro trades currently at a price-to-earnings (P/E) ratio of 21.52x, which is a discount to the tech sector median. Plus, with a price/earnings-to-growth (PEG) ratio of 0.69x, the stock could be undervalued relative to its future growth prospects.
Super Micro Drops on Q4 Earnings Miss
On Aug. 7, shares of Super Micro took a nosedive, closing over 20% lower following a weaker-than-expected fiscal Q4 earnings report. Although the company posted an impressive 143.6% annual revenue surge to $5.31 billion, slightly beating analysts’ expectations of $5.30 billion, its EPS of $5.51 missed estimates by 27.1%, despite year-over-year growth of 60.6%.
Super Micro’s gross margin tumbled to 11.2% from 17% a year ago and 15.5% last quarter. This decline stemmed from a greater share of lower-margin hyperscale data center business and higher costs for Direct Liquid Cooling (DLC) components. Operating margins also slid to 6.5% from 10.4%.
Adding to the woes, management warned of ongoing shipment delays due to supply chain issues and delayed shipments of Nvidia’s (NVDA) Blackwell systems, which are crucial for Super Micro’s high-margin DLC solutions. This combination of problems could keep the pressure on margins in the near term.
Potential for Recovery and Future Prospects
However, Super Micro is eyeing a longer-term gross margin rebound, with supply chain hiccups that spiked component prices expected to smooth out over the coming year. Management is optimistic, pointing to reduced manufacturing costs from new facilities in Malaysia and Taiwan. Plus, they’re setting their sights on expanding in the Americas and Europe.
Looking ahead to fiscal Q1, management expects revenue to be between $6 billion and $7 billion, ranging from 183% to 230% growth, while non-GAAP EPS is anticipated to be between $6.69 and $8.27. For fiscal 2025, it anticipates $26 billion to $30 billion in revenue, which would be 74% to 101% annual growth.
Analysts tracking SMCI predict EPS of $28.50 in fiscal 2025, up 41.9% annually, with the bottom line projected to surge another 11% to $31.63 in fiscal 2026.
Challenges and Skepticism
Following the post-earnings sell-off, the cloud hanging over Super Micro Computer got a bit darker, with short seller Hindenburg Research raising serious concerns about Super Micro. The short-selling firm accused the firm of shady accounting practices, export control violations, and troubling customer issues, at the same time that it disclosed a short position on SMCI stock.
The server giant’s past brushes with regulatory
Challenges Surface for Super Micro: What Lies Ahead?
In the labyrinthine world of finance, sometimes the chinks in a company’s armor echo like thunder on a quiet night. Such is the case for Super Micro Computer Inc. (SMCI), as a tempest of troubles brews ominously on the horizon.
The Storm Unfolds
The saga began in 2018 when SMCI faced the wrath of the Nasdaq for failing to file its financial reports. Fast forward to 2020, a $17.5 million settlement with the SEC seemed to offer a glimmer of hope. However, allegations by Hindenburg Research claim that SMCI slipped into old habits by rehiring executives tainted by scandal. The intertwining business relationships with CEO Charles Liang’s brothers, who oversee crucial suppliers, only add fuel to the fire. Unanswered queries linger about undisclosed transactions and questionable revenue practices.
The plot thickens as reports suggest that SMCI might be skirting the edges of sanctions by increasing exports to Russia. Compounding matters are customer service snafus pushing major clients like Nvidia, CoreWeave, and Tesla to the brink.
The Ripple Effect
If these accusations bear fruit, the very foundation of SMCI’s reputation might crack under the strain. Uncertainty looms large, casting a shadow on the company’s growth prospects. The specter of volatility raises its head, leaving investors tiptoeing around SMCI, unsure of its future course.
Analyzing the Analysts
As the storm gathers strength, analysts are divided in their predictions. Wells Fargo swiftly revised down its price target for SMCI, sighting revenue recognition uncertainties and the company’s chequered history. JPMorgan, on the other hand, stepped up to defend SMCI, citing limited evidence of accounting irregularities.
Despite the divided opinions, the consensus rating for SMCI stands at “Moderate Buy.” Out of 13 analysts covering the stock, sentiments range from “Strong Buy” to “Strong Sell,” with a shifting tide of optimism over time.
Looking through the haze of uncertainty, the mean price target for SMCI hovers at a lofty $922.54. Yet, with the storm clouds of accounting delays gathering, potential investors must navigate the choppy waters of volatility before plunging into the deep end.