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Key Points
 

• Supermicro stock soared 27% this week, making it the best performer on the S&P 500.
• The company looks to be moving forward from governance issues that plagued it last year.
• The company sees AI demand fueling its growth.

The AI stock finished the week as the biggest gainer on the S&P 500, up 27%.

It has been a wild week for Super Micro Computer (NASDAQ:SMCI) stock, which had its share of ups and downs. But ultimately, the AI stock finished the week as the top performer on the S&P 500.

Super Micro Computer, also called Supermicro, saw its stock price rise 27% this week to lead all stocks on the S&P 500. It ended the week with a flourish, rising 9% on Friday to $46 per share.

There is a lot happening with this company, so let’s examine its catalysts.

Getting back on track

It has not only been a volatile week for Supermicro, a leading manufacturer of AI-enabled servers for data centers, but it has been a crazy past several months.

As we wrote about previously, Supermicro had issues with its internal controls and governance last year, which caused it not to file its annual report for the fiscal year ended June 30, 2024.

An internal investigation followed, and the firm ultimately hired a new auditor, BDO. But due to the investigation, it also failed to file a first quarter earnings report for the quarter ended September 30. This led to Nasdaq threatening to delist Supermicro from its exchange if it did not file the earnings reports.

Nasdaq agreed to extend the deadline to file the reports as the internal investigation was ongoing. Ultimately, in December, the firm found that no evidence of fraud or misconduct. In the meantime, the stock price dropped about 46% over the past 12 months.

So now, things are moving forward again, with Supermicro confirming its release of the 2024 annual report, as well las the Q1 and Q2 reports, on Feb. 25.

But what sparked this week’s volatility was the release of preliminary earnings for the second quarter, which included some mixed results.

Mixed Q2 earnings and $700 million of liquidity

The preliminary second quarter earnings were strong, but they came in below analysts’ estimates.

Supermicro is calling for net sales in the quarter to be in the range of $5.6 billion to $5.7 billion, which would be up a robust 54% year-over-year at the midpoint. But that came in slightly below estimates of $5.8 billion. Further, it is calling for GAAP earnings of 50 cents to 52 cents per share, which would be flat year over year. Adjusted earnings are targeted at 58 cents to 60 cents per share, which would be up 5% but below estimates of 61 cents per share.

Thus, the stock initially dropped about 9% after the February 11 release, but then it spiked back up after more news emerged.

On February 12, Supermicro announced that it is issuing $700 million in convertible notes, privately negotiated with institutional buyers that are due in 2028. The new convertible notes will have an initial conversion price of approximately $61.06 per share of the company’s common stock, representing a premium of approximately 50% over the $40.70 per share price on February 12. The company will use the extra liquidity for general corporate purposes and to fund growth and business expansion.

More importantly, perhaps, it showed investors that institutional buyers had confidence in Supermicro and its ability to move beyond its regulatory concerns and continue its strong growth.

AI growth engine

In the near term however, earnings gains look muted, as outlined by Supermicro in its preliminary earnings release.

Its outlook for the fiscal third quarter ending March 31 calls for net sales in the range of $5 billion to $6 billion, which would be below Q2 projections at the midpoint. Further, GAAP earnings are targeted at 36 cents to 53 cents per share while adjusted earnings are pegged at 46 cents to 62 cents per share. Both of these estimates are below Q2 projections at the midpoint.

For the full fiscal year 2025, lowered its guidance for revenue from $26 billion to $30 billion to a new range of $23.5 billion to $25 billion.

But investors are looking longer-term, as they should, seeing an opportunity to get this stock on the cheap. It currently has a P/E of just 21 and a forward P/E of 12, which makes it a relative bargain among AI stocks.

And it is well-positioned for growth long-term growth. The company expects to benefit from the high demand for NVIDIA’s new Blackwell chips, which Supermicro uses in its data center servers.

“With our leading direct-liquid cooling (DLC) technology and over 30% of new data centers expected to adopt it in the next 12 months, Supermicro is well positioned to grow AI infrastructure designs wins based on NVIDIA Blackwell and more,” Charles Liang, founder, president and CEO of Supermicro, said.

Liang believes it will expand Supermicro’s leadership as a data center infrastructure provider.

Investors probably shouldn’t expect huge growth in the near-term from Supermicro stock, as there could be choppiness after the company releases these overdue reports. But investors are banking on long term growth, and buying low.

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