After a strong start to the year, Super Microcomputer (NASDAQ: SMCI) stock is under pressure after a disappointing earnings report, unwanted attention from prominent short sellers, and a delay in its annual $10,000 filing. exposed to There is also the possibility of an investigation by the Department of Justice (DOJ). However, the stock price rose after the company issued a press release mentioning its quarterly shipments.
With this backdrop, let’s take a closer look at the company’s recent announcement, what it means, and whether it could be the start of a bigger rebound in the stock price.
Over 100,000 GPUs shipped
As part of the announcement introducing new cooling technology, Supermicro slipped into the headline of a press release that it now ships more than 100,000 graphics processing units (GPUs) per quarter. The company recently deployed more than 100,000 GPUs with direct liquid cooling (DLC) solutions in several very large data centers built to power artificial intelligence (AI) applications. revealed in the release.
Now, it’s important to understand what exactly Supermicro does in relation to this statement. We don’t design GPUs like Nvidia or manufacture them like Taiwan Semiconductor. We purchase components such as GPUs and design and assemble server and rack solutions for our customers.
The company doesn’t offer the same level of support as branded servers made by Dell, but it sells them at much lower prices. Supermicro also carved out a niche as one of the first server companies to embrace DLC. GPUs generate a lot of heat, so you need to keep them cool to avoid failures and save on energy costs.
To promote this technology, Supermicro charges the same price as more standard air cooling systems. Dell also has DLC technology but is just starting to ramp it up, so Supermicro has a first-mover advantage.
Selling large numbers of expensive GPUs would increase revenue, but the company isn’t collecting significant markups from those chips. As a result, gross profit margins are very low and have been under pressure recently. Gross profit margin for the previous quarter decreased to 11.2% from 17.0% in the same period last year. By comparison, Nvidia reported a gross profit margin of 75% in its most recent quarter, while contract manufacturer Taiwan Semiconductor’s gross profit margin was 53%.
Image source: Getty Images.
Can stock prices continue to rebound?
Beyond margin pressure, Supermicro stocks have come under fire following allegations from Hindenburg Research of accounting manipulation, sanctions violations and management self-dealing. A few years ago, the company settled with the SEC for $17.5 million over similar accounting issues, but the company never acknowledged the SEC’s claims.
To make matters worse, Supermicro postponed filing its annual report following Hindenburg’s brief report. Since then, the Wall Street Journal has also reported that the Justice Department is investigating the company over accounting issues, but neither side has acknowledged the existence of an investigation.
While some of the developments may be alarming, it’s clear that Supermicro is benefiting from the billions of dollars poured into building its AI infrastructure. It may not have such a wide moat, but it will continue to benefit as big tech companies scoop up GPUs in a massive arms race.
The stock is not overvalued, trading at 14 times analysts’ 2025 earnings estimates. This stock isn’t one for high price-to-earnings, but it appears to be undervalued because of the AI growth opportunity in front of us.
SMCI PER (futures) chart
The question, of course, is what happens next. There are many scenarios in which the stock could rise, but Supermicro remains a risky stock given the uncertainty surrounding its annual report and the possibility of a Justice Department investigation. Investors should approach stocks with caution.
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Jeffrey Seiler has no position in any stocks mentioned. The Motley Fool has positions in and recommends Nvidia and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.
Super microcomputer stock price soars on shipping news. Can stock prices continue to rebound? Originally published by The Motley Fool
