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Post Hindenburg Report: Buy, Hold, or Sell SMCI Stock?
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Super Micro Computer, Inc.’s (SMCI - Free Report) shares have seen a meteoric rise over the past three financial years due to increased demand for artificial intelligence (AI) chips. At the beginning of the year, the SMCI stock even outperformed Wall Street darling semiconductor stock NVIDIA Corporation (NVDA - Free Report) , which helped Super Micro get a position in the S&P 500 index in mid-March (read more: NVIDIA Wipes Out $400B in Value: Buy, Hold, or Sell NVDA Stock?).
Super Micro’s success story, however, came to a standstill, thanks to a bearish short-seller report. The SMCI stock slipped more than 20% since the short report in late August. The SMCI stock did make a comeback on Monday’s trading session but continues to trade 68% below its all-time high, valuing the company at a market capitalization of $24 billion. So, at the moment, should investors sell the SMCI stock or buy the dip? Let’s have a look –
SMCI Stock – Short Seller Claims Accounting Irregularities
Hindenburg Research LLC, an investment research organization, claimed that Super Micro is involved in accounting manipulation. The research firm also alleged that Super Micro is involved in undisclosed third-party transactions and responsible for export control failures.
Hindenburg Research analyzed Super Micro’s litigation records for three months and interviewed several of the company’s employees. The research firm’s investigation compelled Super Micro to delay the annual 10-K filing with the Securities and Exchange Commission.
There is No Concrete Reason to Sell the SMCI Stock
Hindenburg Research has issued a short report. So, the investment firm must have the intention to push the price of the SMCI stock downward and allow its associated investors to gain from the drop. These investors are betting on the price of the SMCI stock to decrease, only to buy them later at a bargain. Thus, the report could be biased.
Super Micro, on the other hand, has called the short seller’s report inaccurate and a misrepresentation of facts. Super Micro expects to complete the 10-K filing with minor performance changes at the earliest. Therefore, there isn’t any solid reason to be bearish on the SMCI stock.
Is the SMCI Stock Worth Buying Now?
Super Micro’s AI servers are required to mount AI chips. The ever-growing AI chip market, thus, would help the SMCI stock to scale upward in the long run. According to Allied Market Research, the thriving AI-chip market is projected to register a CAGR of 38.2% from 2023 to 2032, to $383.7 billion by 2032.
Super Micro has room to expand its business in the ever-expanding AI server market. Super Micro accounts for only 10% of the AI server market share and is giving stiff competition to reputable players like Dell Technologies Inc. (DELL - Free Report) . Global Market Insights added that the AI server market is estimated to notch a CAGR of 18% or more from 2024 to 2032.
Super Micro, meanwhile, has generated profits proficiently. This is because the SMCI stock’s return on equity (ROE) is 34%, much higher than the Computer- Storage Devices industry’s 6.5%. Any ROE above 20% is generally considered to be very strong.
Image Source: Zacks Investment Research
Super Micro’s current-year earnings outlook also looks promising, banking on the increase in demand for graphic processing units and rack-scale solutions needed for AI applications. As a result, the $33.50 Zacks Consensus Estimate for SMCI’s earnings per share is up 86.3% year over year (read more: 2 AI Stocks That Can Be the Next NVIDIA).
Image Source: Zacks Investment Research
What’s more, the SMCI stock is currently trading at a discount. Per the price/earnings ratio, SMCI presently trades at 13.5X forward earnings. But the industry’s forward earnings multiple is 14.4X.
Despite the growth drivers, investors should mull over Super Micro’s concerns regarding cash burn and margin pressures. To achieve its ambitious revenue target, Super Micro needs to spend a lot in free cash flow, which might impact its solvency.
To provide AI server and rack solutions, a lot of working capital is also required, and that may impact Super Micro’s gross margins. So, investors can wait and watch for more reassuring developments in these critical areas before buying the SMCI stock.
Image: Bigstock
Post Hindenburg Report: Buy, Hold, or Sell SMCI Stock?
Super Micro Computer, Inc.’s (SMCI - Free Report) shares have seen a meteoric rise over the past three financial years due to increased demand for artificial intelligence (AI) chips. At the beginning of the year, the SMCI stock even outperformed Wall Street darling semiconductor stock NVIDIA Corporation (NVDA - Free Report) , which helped Super Micro get a position in the S&P 500 index in mid-March (read more: NVIDIA Wipes Out $400B in Value: Buy, Hold, or Sell NVDA Stock?).
Super Micro’s success story, however, came to a standstill, thanks to a bearish short-seller report. The SMCI stock slipped more than 20% since the short report in late August. The SMCI stock did make a comeback on Monday’s trading session but continues to trade 68% below its all-time high, valuing the company at a market capitalization of $24 billion. So, at the moment, should investors sell the SMCI stock or buy the dip? Let’s have a look –
SMCI Stock – Short Seller Claims Accounting Irregularities
Hindenburg Research LLC, an investment research organization, claimed that Super Micro is involved in accounting manipulation. The research firm also alleged that Super Micro is involved in undisclosed third-party transactions and responsible for export control failures.
Hindenburg Research analyzed Super Micro’s litigation records for three months and interviewed several of the company’s employees. The research firm’s investigation compelled Super Micro to delay the annual 10-K filing with the Securities and Exchange Commission.
There is No Concrete Reason to Sell the SMCI Stock
Hindenburg Research has issued a short report. So, the investment firm must have the intention to push the price of the SMCI stock downward and allow its associated investors to gain from the drop. These investors are betting on the price of the SMCI stock to decrease, only to buy them later at a bargain. Thus, the report could be biased.
Super Micro, on the other hand, has called the short seller’s report inaccurate and a misrepresentation of facts. Super Micro expects to complete the 10-K filing with minor performance changes at the earliest. Therefore, there isn’t any solid reason to be bearish on the SMCI stock.
Is the SMCI Stock Worth Buying Now?
Super Micro’s AI servers are required to mount AI chips. The ever-growing AI chip market, thus, would help the SMCI stock to scale upward in the long run. According to Allied Market Research, the thriving AI-chip market is projected to register a CAGR of 38.2% from 2023 to 2032, to $383.7 billion by 2032.
Super Micro has room to expand its business in the ever-expanding AI server market. Super Micro accounts for only 10% of the AI server market share and is giving stiff competition to reputable players like Dell Technologies Inc. (DELL - Free Report) . Global Market Insights added that the AI server market is estimated to notch a CAGR of 18% or more from 2024 to 2032.
Super Micro, meanwhile, has generated profits proficiently. This is because the SMCI stock’s return on equity (ROE) is 34%, much higher than the Computer- Storage Devices industry’s 6.5%. Any ROE above 20% is generally considered to be very strong.
Image Source: Zacks Investment Research
Super Micro’s current-year earnings outlook also looks promising, banking on the increase in demand for graphic processing units and rack-scale solutions needed for AI applications. As a result, the $33.50 Zacks Consensus Estimate for SMCI’s earnings per share is up 86.3% year over year (read more: 2 AI Stocks That Can Be the Next NVIDIA).
Image Source: Zacks Investment Research
What’s more, the SMCI stock is currently trading at a discount. Per the price/earnings ratio, SMCI presently trades at 13.5X forward earnings. But the industry’s forward earnings multiple is 14.4X.
Image Source: Zacks Investment Research
Thus, attractive valuation and sheer dominance in the AI field should entice one to place bets on the SMCI stock (read more: This Is Why SMCI Stock is Falling, But Why It's Time to Buy).
Before Buying the SMCI Stock, Consider This
Despite the growth drivers, investors should mull over Super Micro’s concerns regarding cash burn and margin pressures. To achieve its ambitious revenue target, Super Micro needs to spend a lot in free cash flow, which might impact its solvency.
To provide AI server and rack solutions, a lot of working capital is also required, and that may impact Super Micro’s gross margins. So, investors can wait and watch for more reassuring developments in these critical areas before buying the SMCI stock.
The SMCI stock currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.