Super Micro Computer experienced a remarkable first half of the year, with a 3.40% increase, fueled by strong demand from artificial intelligence (AI) clients. In just one quarter, the company achieved sales exceeding its previous annual revenue levels from 2021. This impressive performance led to its inclusion in the S&P 500 and Nasdaq-100, marking a significant milestone for this 30-year-old technology firm. As a result, Supermicro’s stock surged by 188%, surpassing even the market favorite, Nvidia.
Earlier this year, the stock reached unprecedented heights, peaking at over $1,100. In response, Supermicro announced a stock split in August, scheduled for later this month. This move involves issuing additional shares to existing shareholders, thereby reducing the stock’s per-share price and making it more accessible to a broader range of investors.
However, the narrative took a downturn recently. A short report from Hindenburg Research, alleging difficulties at Supermicro, negatively impacted the stock, which has dropped 16% since the report’s late August release. Additionally, Supermicro postponed filing its 10-K annual report, further influencing the stock’s performance. Despite these obstacles, Supermicro remains an attractive investment opportunity. Let’s explore the reasons why.
Hindenburg’s short position
To start with the negative news, Hindenburg’s report accused Supermicro of “glaring accounting red flags,” “evidence of undisclosed related party transactions,” among other potential issues. However, it’s crucial to remember that Hindenburg holds a short position in Supermicro, which means they stand to gain if the stock’s value decreases. This bias makes it difficult to fully trust Hindenburg as a reliable source of information on the company.
Moreover, Supermicro has responded to the report, stating it “contains false or inaccurate statements.” Therefore, making a decision to buy or sell based solely on the Hindenburg report might not be wise. Instead, consider the company’s historical performance, insights from recent earnings reports, and its market potential.
Supermicro, although established for some time, has seen its earnings surge only in recent years. This growth is driven by AI clients rapidly building their data centers, turning to Supermicro for its workstations, servers, and other products.
Supermicro’s strategy
Why choose Supermicro? The company excels in swiftly developing products tailored to customer needs, incorporating cutting-edge technology. It achieves this through building block technology, enabling products to share many common components. Furthermore, Supermicro collaborates closely with leading chip designers to integrate their latest releases into its offerings promptly.
This approach has propelled the company to record revenue levels in recent quarters. Furthermore, Supermicro could be at the forefront of a new high-growth opportunity, addressing a significant issue in today’s AI data centers: heat accumulation. Supermicro’s direct liquid cooling (DLC) solutions tackle this problem, and the company anticipates a surge in demand. It predicts that 25% to 30% of new data centers will adopt this technology in the next 12 months, with Supermicro leading the market.
Considering the AI market is projected to exceed $1 trillion by the decade’s end, Supermicro’s expertise in DLC could drive substantial growth.
Lastly, Supermicro recently clarified that despite delaying its 10-K filing, it doesn’t foresee significant changes to its fourth-quarter or fiscal-year results, providing some reassurance.
In conclusion, Supermicro presents a strong track record, a distinctive strategy, and promising growth potential. Despite recent challenges, the stock is currently undervalued, trading at only about 13 times forward earnings estimates. This makes it an opportune time for long-term investors to consider acquiring shares in a company poised for a new phase of growth.
Don’t miss this second chance at a potentially lucrative opportunity
Ever feel like you missed the opportunity to invest in the most successful stocks? Here’s something you should know.
Occasionally, our team of expert analysts issues a “Double Down” stock recommendation for companies they believe are poised for significant growth. If you’re concerned you’ve missed your chance to invest, now is the ideal time to act before it’s too late. The numbers speak for themselves:
Nvidia: A $1,000 investment when we doubled down in 2009 would have grown to $308,807!*
Apple: A $1,000 investment when we doubled down in 2008 would now be worth $42,091!*
Netflix: A $1,000 investment when we doubled down in 2004 would have soared to $375,918!*
At present, we’re issuing “Double Down” alerts for three remarkable companies, and opportunities like this may not come again soon.
Explore 3 “Double Down” stocks ›
*Stock Advisor returns as of 09/15/2024
