Super Micro Computer Shares Down 18%. Will Earnings Rise After Stock Split?

At the beginning of this year, Super microcomputer (NASDAQ: SMCI) proved to be a powerhouse in today’s economy. The company saw triple-digit revenue growth thanks to customer demand for its artificial intelligence (AI) hardware. The stock’s performance improved, rising 188% in the first half of the year, outpacing even market darling Nvidia. And Supermicro got invitations to join S&P500 and Nasdaq100which is another signal confirming the company’s high profits and its leading position on the market.

That all sounds great, but Supermicro has been facing headwinds in recent weeks that have sent its stock price tumbling. Shares are down about 18% since a late-August report purporting to be troubled by the company. Investors have also been worried because Supermicro has delayed its annual 10-K report.

Now, moving forward, Supermicro has a big event just around the corner. The company will complete a 10-for-1 stock split at the end of the month, and the shares will begin trading at the new split-adjusted price on October 1. Will this once-high-flying stock recover from its recent woes and soar higher after the stock split? Let’s find out.

What’s next for Supermicro

First, let’s talk about Supermicro’s path so far and what might lie ahead. The company is not new to making workstations, servers, and other hardware. Supermicro has been around for more than 30 years, but it only recently began to grow as the AI ​​boom accelerated. AI customers have flocked to Supermicro to buy hardware to build and expand their data centers.

And Supermicro was ready to serve them—and with all the latest AI chip technology, because this tech powerhouse works hand in hand with the biggest chip designers. So when Nvidia, for example, releases a new chip, it’s immediately available in Supermicro hardware. That’s helped Supermicro grow five times faster than the industry average over the past year.

It also helped Supermicro’s profits grow. In the latest quarter, revenue jumped more than 140%, and profits rose by double digits. And that could be just the beginning, as Supermicro prepares to tackle a new, growing market: cooling solutions that address the heat problem in AI data centers. Supermicro predicts that as many as 30% of new data centers will opt for direct liquid cooling in the next 12 months, and it says it will dominate that market.

At the same time, Supermicro is preparing to open a facility in Malaysia, which will help it increase sales volume and reduce costs in the coming years.

The story continues

As for Supermicro’s condensed report and delayed annual report, I don’t think these issues will change the clear long-term outlook: Supermicro has called the statements in the condensed report “false or inaccurate” and, with respect to the annual report, has said it does not expect any significant change in earnings.

Supermicro Stock Split

Now consider an upcoming stock split. These operations lower the price of each individual share, making the stock more accessible to a wider range of investors. But splits don’t change anything fundamental about the company—for example, the company’s valuation and market value remain the same.

That means that a stock split in and of itself isn’t a reason to buy the stock — so the stock probably won’t go up when it opens at a split-adjusted price. Still, a split is generally a positive move for the company because, as mentioned, it makes it easier for more people to buy that particular stock. In this case, given Supermicro’s current price and the split ratio, you’d be able to buy a share for about $45 instead of more than $450. That could gradually attract more investors to the stock — but only if they like the company’s earnings history and long-term prospects.

Now back to our question. Will the stock rise after the split? I wouldn’t expect it to happen overnight, as stock splits themselves don’t act as catalysts for results. But given Supermicro’s earnings strength to date and its potential to dominate the DLC market, this top AI player has a lot of room to play in the long run.

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Adria Cimino has no position in any stocks mentioned. The Motley Fool has a position in Nvidia and recommends it. The Motley Fool has a disclosure policy.

Super Micro Computer Down 18%. Will It Rise After a Stock Split? was originally published on The Motley Fool