Last year, the specialist for high-end server and storage solutions experienced extraordinary success Super microcomputer (NASDAQ:SMCI), also known as Supermicro. Prior to the company’s latest quarterly report, which the company released after the market closed on Tuesday, the stock had gained more than 700% in the past year, driven by increasing demand for artificial intelligence (AI) systems and the hardware that powers them .
However, gravity may have finally caught up with Supermicro. Despite robust results and increased guidance, investors engaged in a round of profit-taking on Wednesday morning, sending the stock down as much as 18.5%. As of 11:50 a.m. ET, the stock was still down 15.8%.
Sometimes fabulous isn’t good enough
In the third quarter of fiscal 2024, which ended March 31, Supermicro’s revenue rose 200% year-over-year to $3.85 billion. The rising profit margins had an even greater impact on the bottom line: Adjusted earnings per share (EPS) rose 308% to $6.65. Analysts’ consensus estimates were for revenue of $3.95 billion and earnings per share of $5.78. So while profits were higher than expected, sales fell slightly short of expectations.
During the earnings call, CEO Charles Ling noted that Supermicro continues to “face some supply chain challenges,” particularly related to components for its direct liquid-cooled servers. These servers are in high demand among cloud service providers and data center operators as they strive to meet increasing demand for hardware that can support generative AI. These shortages likely contributed to slightly lower than expected sales growth. However, he expects the bottlenecks to ease in the coming quarters.
Ling also reminded investors that this was “another record quarter” and said, “We expect to continue to gain market share.”
Increased guidance
With the company’s recent rapid growth, management raised its full-year revenue forecast to a range of $14.7 billion to $15.1 billion. A range of $14.3 billion to $14.7 billion was previously forecast. If it reaches the midpoint of its revised guidance, Supermicro will deliver 109% year-over-year revenue growth.
Given Supermicro’s triple-digit percentage growth and solid guidance, the stock remains attractively valued, trading at about twice expected forward sales. However, this AI transition is still in its early stages and the road ahead is likely to be long and volatile. Investors should ignore the noise and buy Supermicro for the long term.
Should you invest $1,000 in Super Micro Computer now?
Before you buy shares of Super Micro Computer, consider the following:
The Motley Fool Stock Advisor The analyst team has just identified what they think this is The 10 best stocks so investors can buy it now… and Super Micro Computer wasn’t one of them. The ten stocks that made the cut could deliver huge returns in the years to come.
Think about when Nvidia created this list on April 15, 2005… if you have $1,000 invested at the time of our recommendation, You would have $529,390!*
Stock Advisor provides investors with an easy-to-understand roadmap to success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor has service more than quadrupled the return of the S&P 500 since 2002*.
See the 10 stocks »
*Stock Advisor returns as of April 30, 2024
Danny Vena holds positions in the Super Micro Computer sector. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
Why Super Micro Computer Stock Crashed and Burned Wednesday Morning was originally published by The Motley Fool