The Super Micro Computer (SMCI) stock price has remained under pressure in the past few months as concerns about its business and the artificial intelligence (AI) industry. It was trading at $46.25 on Friday, down by over 62% from its highest level this year.
SMCI’s performance mirrors that of Celsius Holdings, which surged to $100 earlier this year and has now moved to $30, its lowest point since May last year.
Supermicro is facing major headwinds
Super Micro Computer, commonly known as Supermicro, is a leading technology company that made headlines as demand for data center soared.
The company provides servers, storage systems, workstations, and network devices that are used by some of the leading players in the industry.
Its solutions have become highly critical as companies like Microsoft, Alphabet, and Amazon have continued to invest in data centers. Analysts estimate that these investments could cross the important milestone of $1 trillion in the next few years.
NVIDIA has become one of the biggest beneficiaries of this industry, a move that has pushed its valuation to over $3 trillion. Beneath NVIDIA, other companies like SMCI that provide solutions in the industry have also benefited.
This growth is evidenced by the company’s financial results. Data by SeekingAlpha shows that its annual revenue stood at over $3.3 billion in 2020, a figure that surged to $14.4 billion in the last financial year. Its revenue in the last quarter stood at over $5.3 billion, much higher than what it made in 2020.
Super Micro Computer has also become a highly profitable company because of the soaring demand for its products. It made a net profit of $352 million last quarter, also, much higher than the $285 million it made in 2022.
Not everyone is convinced about SMCI’s strong growth. For example, Hindenburg Research has accused the company of manipulating its business and by re-hiring some of the staff who were let go after paying a $17.5 million settlement with the Securities and Exchange Commission (SEC). Supermicro also delayed submitting its annual 10k report.
SMCI earnings ahead
Supermicro has made several important headlines in the past few weeks. Earlier this month, it launched new servers and GPU accelerated systems with AMD EPYC 9005 Series CPUs and Instinct GPUs. In its statement, it noted that the new products will enable up to 192 cores per CPU with up to 500W thermal power design.
The company also introduced new liquid cooling solutions powered by NVIDIA GB200 NVL72 platform for exascale computing.
These solutions are aimed at making it a leading player in the AI data center industry. Besides, it has now scaled its business such that it is shipping over 100,000 GPUs per quarter.
The most recent financial results showed that Super Micro Computer’s sales jumped to $5.3 billion from $3.85 billion in the same period a year earlier.
Its net income also jumped to $353 million from $194 million a year earlier. This happened even after its margins narrowed from 17% to 11.2%. These margins narrowed after the company continued to increase its investments by expanding its soluyions in Malaysia and California.
Therefore, traders will focus on its upcoming earnings on October 30th. Analysts expect the numbers to show that its revenue surged by 212% to $6.45 billion. Its next quarter revenue guidance will be $6.9 billion. For the next financial year, the company is expected to make $27.8 billion and $32 billion.
If these numbers are accurate, then it means that it is significantly undervalued considering its strong growth.
Super Micro has a market value of over $26 billion, giving it a forward price-to-earnings ratio of 15.3. This is a significantly small valuation considering that the median industry average is 29 and the S&P 500 index has a multiple of 21. Analysts also expect that its stock will rise to $76.70, a 65% increase from the current level.
Super Micro Computer stock price analysis
SMCI chart by TradingView
The weekly chart shows that the SMCI share price has been in a strong bearish trend in the past few months. It has moved from the year-to-date high of $123 to $46.
The stock has dropped below the 50-week Exponential Moving Average. It has also found support at the 100-week and 200-week moving averages.
On the negative side, the stock has formed a bearish flag chart pattern, which is characterised by a long vertical line and a rectangle. In most cases, this is one of the most bearish sign, meaning that the stock could have a strong bearish breakout after earnings.
If this happens, the SMCI stock price could drop to the next key support point at $37.17, its lowest point on September 23. This view will be invalidated if it rises above the resistance point at $52.
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