Super Micro Falls 50% – Should You Buy the Dip or Sell? Dear Reader, This week, the market was consumed with the election – and understandably so. The next president – which we now know will be Donald Trump – will have a significant impact on the broader economy (I talked about these impacts in yesterday’s Market 360 which you can read here now). So, if a few of you forgot that we are also smack dab in the middle of earnings season, it’s understandable. But there’s one particular company that Wall Street has been waiting to hear from this earnings season: Super Micro Computer, Inc. (SMCI). And we finally got an update from the company this past Tuesday. Now, you may recall that Super Micro took a serious beating earlier this summer after it was riding high as one of the hottest AI companies during the AI boom. On August 26, Super Micro fell victim to a short-seller report by Hindenburg Research. A former employee claimed that Super Micro was committing accounting violations and filed a whistleblower report. Personally, I think short sellers are scum. They issue reports like this about companies for one simple reason: to cause a stock to tumble. They make money when the stock goes down. They take the money and run, and never have any follow-up reports. The Department of Justice (DOJ), however, took Hindenburg Research’s allegations seriously and issued a probe to investigate the allegations in light of the report. Super Micro had to delay the filing of its annual 10-K report to the Securities & Exchange Commission (SEC). Then on October 30, SMCI dropped more than 30% after its auditor, Ernst & Young, resigned, citing concerns over the company’s controls. The stock fell another 12% the following day after CNBC’s Jim Cramer said that Super Micro might get delisted from the NASDAQ. The company did get a deficiency letter, and it has until November 16 to comply.
Leading up to Super Micro’s first-quarter preliminary results, people attacking the company were still claiming that it is exaggerating its sales. But what I think happened is that Super Micro’s sales are booked far in advance. In other words, salespeople might be booking sales today that won’t materialize for two, three, or even four years. And that’s because there is a significant chip shortage due to the insane demand caused by the AI Boom. It’s also possible the cloud computing centers that are being retrofitted and built across the country could be delayed until there’s enough electricity to run them. So, in today’s Market 360, let’s take a closer look at Super Micro’s first-quarter preliminary results to see if there was any merit to the short seller’s claims. I’ll also discuss if the stock is still a buy after earnings. Then, I’ll share a way that you can profit from the next wave of the AI boom. Let's Look at the Numbers... On Tuesday night, Super Micro provided preliminary results for the first quarter in fiscal year 2025. The company expects total sales between $5.9 billion and $6.0 billion, compared to its previous outlook for $6.0 billion to $7.0 billion. First-quarter earnings per share are now forecast to be between $0.75 and $0.76, compared to previous guidance for $0.67 to $0.83. The current consensus estimate calls for sales of $6.45 billion and earnings of $0.75 per share. It’s also important to note that Super Micro Computer’s preliminary outlook still represents 186.4% to 191.3% year-over-year sales growth and 120.6% to 123.5% year-over-year earnings growth. Regarding the 10-K filing, Super Micro Computer continues to work on it and can’t predict when it will be filed. As a result, the company is also taking the necessary steps to achieve compliance with the NASDAQ for its listing. Super Micro Computer also noted that the independent Special Committee completed its investigation into the accounting concerns. The three-month investigation found no evidence of fraud or misconduct from management or the board of directors. A full report will be released in the upcoming weeks. The issue with Super Micro is that when orders are booked, they may not be fulfilled for four or five years. I used to do corporate accounting, and I booked the sales immediately and put it in a backlog. So, as long as the orders go into an order backlog, they should be fine. For fiscal year 2025, Super Micro expects total sales between $5.5 billion and $6.1 billion and earnings per share between $0.56 and $0.65. That compares to sales of $3.66 billion and earnings of $0.56 per share in the second quarter of fiscal year 2024. This guidance was below analysts’ expectations, and Wall Street reacted in its typical knee-jerk manner in the aftermath of this report. The stock fell 18% – its lowest level since May of last year – although I should mention that as of this writing, it has since recovered about half that loss since then. Still, the stock is down roughly 50% since October 30. So, many investors are wondering whether it might be time to let it go. Stock Grader Says... Looking at Stock Grader (subscription required), Super Micro has been downgraded to a D-rating, which does mean it’s a “Sell.” However, this is a rare case where I think it’s worth holding. The reality is it could easily be upgraded to a C- or B-rating if it bounces, and it is bouncing. On Thursday, SMCI shares surged more than 12%. Remember, Super Micro still has superior fundamentals. In fact, I don’t have stocks with stronger earnings and sales growth than Super Micro in my system. So, if the company can clear things up and address some of these accusations head-on, I expect its grade to improve significantly. In other words, if you can stomach it, I would consider holding on to it. Profit from the Next Wave of AI Now, if you’re looking for other ways to profit off the AI boom, let me tell you about the second wave of the AI boom. And it is all thanks to Trump’s win in the election. I expect Trump to issue an executive order on energy. He’ll roll back all of the environmental regulations President Joe Biden slapped on the industry to open more land and sea for oil and natural gas drilling, as well as build more natural gas infrastructure. Once Trump opens the floodgates, I expect demand for these data centers to explode… and folks who invest in the right companies early will rake in the profits. There are three data center stocks in particular that could give the necessary power that AI needs and benefit from the incoming boom. I lay out all the details in my Growth Investor special report: The Trump AI Boom: 3 Data Center Stocks With Extreme Upside Potential. If you want the names of these three stocks, click here and become a Growth Investor member today. Sincerely, | .png)
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