Once upon a time, Super Micro Computer, Inc. (SMCI) soared to great heights, fueled by the boom in artificial intelligence. Riding the wave of demand for its high-performance servers tailored for NVIDIA Corporation’s (NVDA) powerful GPUs, SMCI stock skyrocketed by an impressive 332% to $1,229 by March.
However, the fairy tale took a dark turn as the company faced a series of setbacks, including damning allegations from a notorious short seller and a subsequent Department of Justice investigation.
The saga began on August 26 when Hindenburg Research unleashed a report accusing Super Micro of accounting violations based on the disgruntled ramblings of a former employee. While the stock initially wobbled, it regained some ground.
Subsequently, on September 24, the Wall Street Journal reported the DOJ delving into the issue, intensifying scrutiny on Super Micro’s accounting practices.
Allegations, speculation, and market manipulation swirled around SMCI like a treacherous whirlpool, dragging its shares down. The involvement of self-serving short sellers like Hindenburg only served to worsen the situation.
Whether these claims hold water is a matter of investigation, but the turmoil has cast a shadow over Super Micro Computer, unjustly marring its reputation and stock performance.
Despite the turmoil, SMCI boasts strong projected sales and earnings growth. Yet, the burning question remains – should investors consider diving into SMCI now?
A glimmer of hope emerged with Super Micro’s recent 10-for-1 stock split, effective on October 1. This move has stirred intrigue among investors, instigating debates on the attractiveness of buying SMCI amidst the storm.
The Unveiling of a Stock Split
A stock split, an act akin to dividing a pie into more portions, does not tangibly alter a company’s essence or value. It simply redistributes the number of shares held by investors.
For instance, if you possessed 10 shares of Super Micro pre-split, post-split you’d find yourself with a hundred slivers of the pie. The arithmetic may shift, but the stock’s value stays constant, unaffected by the recalibration.
So, why tinker with the share count? The answer lies in democratizing ownership, making stocks more accessible to individual investors who might shy away from high-priced shares.
Despite the numerical shuffle, the intrinsic worth of the stock remains unchanged. It’s all about optics, making the stock appear more affordable and within reach for the common investor.
Furthermore, stock splits tend to attract a swarm of investors, commonly followed by a post-split rally. Bank of America’s Research Investment Committee reports that, historically, post-split stocks have outshone the S&P 500, showcasing an average 25.4% surge in the following year.
Source: Statista
Assessing SMCI’s Investment Merits
Amidst the tumult surrounding Super Micro, the stock split coupled with its robust fundamentals beckons investors to ponder over SMCI’s viability. A peek at my Stock Grader (subscription required) might hold answers.
The Barometer of Super Micro’s Fortunes
In the realm of stock analysis, nothing speaks louder than Stock Grader’s grades for Super Micro. With a lukewarm Fundamental Grade of C, the company finds itself in the ‘Hold’ territory due to recent margin contractions and a stint of underperformance against market forecasts.
Adding to the lackluster vibe is a Quantitative Grade of C, indicating a waning interest from major players in the financial landscape such as hedge funds and pension funds.
Summing it up, Stock Grader delivers an overall Total Grade of C for Super Micro, cementing the ‘Hold’ recommendation.
What does all this mean for investors?
Simply put, Stock Grader advises against buying SMCI at the moment, but for current shareholders, the signal is to hold tight and refrain from selling.
Mark your calendars for November 6, the day when Super Micro is set to unveil its quarterly performance. Projections paint a picture of substantial growth, with earnings potentially more than doubling from the previous year to $7.51 per share and revenue expected to skyrocket by 212.8% to $6.46 billion.
Predicting a Phoenix-like Rebirth
If Super Micro manages to surpass these predictions and offer an optimistic outlook, we could witness a vigorous resurgence in the stock’s value.
While Super Micro battles its current challenges, another AI marvel lurks around the corner.
Elon Musk is gearing up to unveil his groundbreaking “Robotaxi” on October 10, promising a technological leap towards autonomous transportation. This audacious move by Musk marks a pivotal moment in the AI landscape.
Moreover, an opportunity lurks for eager investors. A lesser-known supplier, identified by my esteemed colleague, Luke Lango, stands poised to play a crucial role in Musk’s grand vision.
As you await Super Micro’s rebound, here’s your chance to delve into what could be the next big revelation from Elon Musk.
Join us on Monday, October 7, at 10 a.m. Eastern for a riveting broadcast by Luke, shedding light on this exciting development.
Secure your spot now and be part of this unfolding narrative.
Sincerely,
Louis Navellier
Editor, Market 360