Why AI Darling Super Micro Computer Crashed Today

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Artificial intelligence (AI) stocks are used to being treated like royalty. But not lately.

Among today’s losing stocks, Super Micro Computer (Nasdaq: SMCI), aka Supermicro, is taking it on the chin with a steep fall to its two-month low. The stock has shaved nearly 20% off its value in early trading to below $800 despite the absence of any earnings warning.

Supermicro has been trading in a wide range, having breached the $1,000 level earlier this month, reminding investors of the volatile behavior growth AI stocks tend to exhibit.

But Supermicro, which last month joined the S&P 500, isn’t the only AI name feeling the pain. Industry peers including Nvidia (Nasdaq: NVDA), Intel (Nasdaq: INTC) and Advanced Micro Devices (Nasdaq: AMD) are all trading in the red, pressuring the PHLX Semiconductor index too. The culprit could be ASML (Nasdaq: ASML), which makes semiconductor manufacturing equipment and whose Q1 bookings fell short. But Supermicro’s declines are more severe than its peers.

Supermicro, which makes AI servers for fellow AI phenomenon Nvidia, is gearing up for earnings at the end of the month. But investors are jumping ship, choosing instead to sell on strength in case shares revisit the lower end of their range. After all, SMCI has had an incredible run, advancing a whopping 600% in the last 12 months alone.

No News Is Bad News?

In its fiscal Q2, Supermicro reported record revenue of $3.7 billion, more than double the year-ago performance. As Supermicro continues to ink new partnerships, there isn’t any bad news coming from Silicon Valley. When it comes to the high expectations of AI investors, it could be that no news is bad news.

Supermicro has not made an appearance with an earnings preannouncement. Its silence may have given investors reason to fear the worst despite a lack of any indication the company will miss estimates. Investors may have been spoiled after Supermicro provided a business update leading up to its fiscal Q2 results, highlighting strong market and end-customer demand for its AI tech solutions at the time.

Dell (NYSE: DELL) bulls are licking their chops in hopes that Supermicro will falter as the PC giant sets its sights on the AI server market too. Dell has already revealed that demand for its AI services are exceeding supply. Clearly AI isn’t a zero-sum game, and there could be room for both companies in this white-hot market.

Is Supermicro a Sell in 2024?

With a PE ratio that’s currently hovering at over 60, it’s understandable to say the stock is overvalued. But for an AI growth stock, having a PE ratio in the stratosphere isn’t unheard of.

Wall Street analysts have set a high bar for Supermicro’s stock price. Loop Capital predicts SMCI could nearly double, raising the price target from $600 to the $1,500 level with a buy rating. Loop Capital’s Ananda Baruah points to a couple of catalysts, including Supermicro’s recent addition to the S&P 500 and its favorable position in the AI server segment. But all the hype could be doing more harm than good ahead of earnings.

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