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Super Micro Computer ( NASDAQ:SMCI ) is a mega-cap tech stock that's been in decline for some time, to say the least. Super Micro shares saw a 19% drop in value after the company announced it would deal filing its annual report for the fiscal year ending June 30. The delay followed short seller Hindenburg Research's short report , lobbing accusations of accounting manipulation against the server and storage company.
These accusations were serious, and the market took them as such. In fact, from the company's recent 53-week high, SMCI stock has dropped a whopping 65% from this peak.
The question is whether this blood bath can continue. Here's why I think the stock could be intriguing at current levels, and why investors may want to consider nibbling at current levels.
Key Points About This Article:
- Super Micro has become among the most divisive stocks on Wall Street, with a recent short report out on the company's accounting behaviors signaling some serious downside could be ahead.
- The question is whether this stock has fully priced in these concerns, or if even more downside could be on the horizon from here.
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Big Late-August Dip
Investors who may have missed out on Super Micro's incredible run throughout this year certainly have the opportunity to once again pick up shares at a much more attractive valuation. In fact, shares of SMCI stock are now trading at levels the stock was at in February, meaning this year's incredible ride has officially round-tripped.
Much of the recent decline is due to allegations made as part of Hindenburg's three-month probe, which revealed serious accounting issues , undisclosed related transactions, and regulatory failures. Hindenburg also disclosed a short position in the company, as expected. So far, this has been a very profitable short position for the firm, though it's unclear if Hindenburg is still holding onto its short position, or if this trade has been unwound.
Short seller interest has continued to increase in Super Micro, considering the company's high valuation multiple and its risks highlighted in this short report. While the company is clearly a winner in the AI infrastructure space, it's unclear just how inflated the company's previous numbers have been, which could mean the stock is even more overvalued than many investors currently think.
Until the dust settles, this will likely be a volatile stock moving forward. And with various analysts now downgrading the stock on this report, I expect further near-term weakness will be likely.
Upcoming Stock Split Worth Watching
Unfortunately for investors who were banking on Super Micro's upcoming stock split on September 30 to provide a big upside catalyst for this stock, that thesis is now overshadowed by these accounting concerns.
The 10-for-1 split will provide existing investors with 9 additional shares for each individual share they own, and aligns Super Micro with other very successful AI-related companies that have recently split their stocks as well.
From around $425 per share at the time of writing, SMCI stock should move toward the $42.50 range as a result of this split, with the ultimate price obviously being determined at the end of the month. But by increasing the company's total share count, Super Micro appears to be looking to broaden out its investor base, make options cheaper on its chain, and improve the ability to compensate employees with stock moving forward. Overall, stock splits for fast-growing companies are generally considered a good thing, though in the face of legal concerns, it's unclear whether this catalyst will have its intended effect.
AI Catalysts Are Real
Despite strong continued revenue growth, Super Micro's Q4 margins fell due to new product launches, with weak margins expected through most of fiscal 2025. Currently trading at 18.4-times forward earnings, the stock appears undervalued given its projected 72% earnings growth. However, as mentioned, with some restating of financials likely, it's really unclear what multiple this stock is currently trading at, given that forward earnings esimtates are likely to be taken down on any sort of serious revisions.
A clear beneficiary of the AI surge , Super Micro has generated plenty of interest in its directly liquid cooling technology, which is becoming industry standard at many data centers. The server and storage solutions company has continued to take market share from competitors, and earn impressive margins on its core technology which should provide recurring revenue over the long-term that positions the stock as an excellent way to play the growth in AI demand.
The company's technology is highly customizable, and seeing strong demand as energy-efficient data center hardware remains in high demand. The company’s unique features have driven a significant revenue increase and promise further growth. Investors should focus on the company’s proven track record and financial strength rather than the stock split alone.
SMCI Stock Could Be a Speculative Buy
I don't think investors should go all-in on any given stock. And certainly, I'd put Super Micro in the category of stocks that carries higher than average risk. Accordingly, this is a company that only those with a higher risk tolerance may want to consider, given its hefty headwinds right now.
That said, at its current valuation, and with its impressive long-term growth prospects remaining intact, this is a company I think could come out of these allegations stronger. If Super Micro is able to tighten up its reporting standards, and provide investors with greater clarity on its exact growth rates thus far, a whole host of growth at a reasonable price investors may begin to pile into this name once again.
Plenty of questions need to be answered for this to be the case. But so long as Super Micro steps up and answers those questions, while continuing to grow its market share in this lucrative space, this is a stock I think could represent a nice buying opportunity at current levels.
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