After a strong start to the year, shares rose Super micro computer (NASDAQ: SMCI) We’ve been under a lot of pressure following a disappointing earnings report and unwanted attention from a prominent figure Short sellerdelay in filing the annual 10-K, and potential investigation by the Department of Justice (DOJ). However, the stock rose after the company issued a press release mentioning the volume of quarterly shipments.
Against 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 for the stock.
Over 100,000 GPU charges
As part of the announcement of the launch of a new cooling technology, Supermicro slipped into the headline of the press release, saying that it is currently shipping more than 100,000 units Graphics processing units (GPUs) For every quarter. It explained in the statement that it recently deployed more than 100,000 GPUs with Direct Liquid Cooling (DLC) solutions to some very large data centers designed to run artificial intelligence (AI) applications.
Now, it’s important to understand exactly what Supermicro is doing regarding this statement. It does not design such GPUs Nvidia Or manufactured like Taiwan Semiconductor Co., Ltd. What it does is purchase components, such as GPUs, and then design and assemble servers and rack solutions for customers.
The company does not offer the same level of support as its branded servers DaleBut they sell them at much lower prices. Supermicro has also carved out a niche by being one of the first server companies to embrace downloadable content (DLC). GPUs generate a lot of heat, so they must be kept cool to avoid failure and to help save on energy costs.
To enhance this technology, Supermicro charges the same price as standard air cooling systems. Although Dell also has DLC technology, it has only just begun to enhance it, so Supermicro has the leadership advantage.
Selling a lot of expensive GPUs will increase revenue, but the company doesn’t collect much profit on those chips. As such, gross margins are very low, which have been under pressure recently. In the most recent quarter, gross margin fell to 11.2%, down from 17.0% a year ago. By comparison, Nvidia reported a gross margin of 75% last quarter, while the contract manufacturer with Taiwan Semiconductor Corporation had a gross margin of 53%.
Can the stock continue to rebound?
Beyond margin pressure, Supermicro shares 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, although the company never acknowledged the SEC’s claims.
To make matters worse, Supermicro delayed filing its annual report in the wake of the short Hindenburg report. since then, The Wall Street Journal It also stated that the Justice Department was investigating the company for accounting issues, although neither party has confirmed the existence of an investigation.
Although some of the developments may be alarming, it is clear that Supermicro is benefiting from the billions of dollars being pumped into building AI infrastructure. It may not have a particularly wide moat, but with the big tech companies snapping up GPUs in a massive arms race, they will continue to benefit.
The stock isn’t expensive either, trading at 14 times analyst estimates for fiscal 2025 earnings. This isn’t a stock you should expect to achieve a high price-to-earnings multiple, but with the AI growth opportunity ahead of it, it looks undervalued. .
The question, of course, is what next? There are a number of scenarios in which the stock could rise, but Supermicro remains a risky pick due to the uncertainty surrounding its annual report and a potential Justice Department investigation. Investors should treat the stock with caution.
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Jeffrey Seller He has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends semiconductor manufacturing company Nvidia and Taiwan. The Motley Fool has Disclosure policy.
Super Micro Computer shares rise on shipping news. Can the stock continue to rebound? Originally published by The Motley Fool
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