Super Micro Computer Inc.’s stock rally, which has been progressing quite strongly, encountered a significant setback on Friday. The company’s shares experienced a harsh selloff that threatened to disrupt what could have been its best week in trading history. The company’s stocks, which had been on a steep upward path, saw a drastic drop of up to 20%. This came as the biggest percentage dip seen on a single day since August.
Prior to Friday’s decline, the stock value of Super Micro was on a high note with an upswing of more than 35% for the week. Despite this dip, it is still on track to post a double-digit gain for the week. If the stock closes lower for the day, it would follow nine consecutive trading sessions of gains, marking its longest streak since 2016.
This slip notwithstanding, the company has had significant wins recently, establishing itself as a key player within the artificial intelligence sector. It has witnessed an upsurge in its stock value in 18 of the past 20 sessions up to Thursday, and its value has more than tripled this year. A massive increment of 246% was also recorded over 2023.
Commenting on the matter, the head trader at US Global Investors Inc., Michael Matousek, noted that it wasn’t unusual for stocks to behave this way when they were on a rapid rise. Matousek referred to this as a “casino mentality,” with investors gambling on momentum while reaping quick wins. He added that some investors were likely facing a rough patch trying to short this stock while others were probably doing great.
Additionally, the total options volume increased, more than double the average over the past month. This was largely driven by new positions in puts set to expire on Friday. There was increased investor interest in these puts as the company’s shares fell, indicating higher demand for downside protection.
Super Micro’s CEO, Charles Liang, has also seen his personal wealth significantly increase. Liang’s wealth has quadrupled this year to $7.8 billion, making him the most significant percentage gainer on the Bloomberg Billionaires Index featuring the world’s 500 richest individuals.
When asked if his company was fairly valued during an interview on Bloomberg TV, Liang proclaimed that Super Micro delivered the world’s best generative AI platform. He added that the company could generate a revenue of up to $25 billion if it had enough semiconductors. According to Liang, the ongoing chip shortage has hindered the company’s potential growth.
In its 2023 fiscal year, Super Micro generated $7.1 billion in revenue. According to data compiled by Bloomberg, this is set to rise to $14.5 billion in the current fiscal year. The San Jose-based company has become increasingly attractive to investors looking to gain exposure to AI and its associated infrastructure of servers and chips. This week, Bank of America initiated coverage on Super Micro’s stock, predicting the AI server market to grow at a compound annual growth rate of 50% over the next three years, with Super Micro expected to be a key beneficiary of this growth.
Despite Friday’s drop, Super Micro’s stock still doesn’t reflect the high valuation seen in other popular tech companies. The company’s shares traded at 39 times its estimated earnings, significantly lower than the more than 90 times recorded for Arm Holdings Plc, a chip designer. Similarly, leading AI company Nvidia Corp has a multiple of around 34.
Super Micro’s preliminary quarterly results released last month surpassed expectations, resulting in an upward revision of its revenue forecast. Wall Street has been keenly observing the company’s performance. According to data compiled by Bloomberg, the consensus amongst analysts for Super Micro’s net earnings in 2025 has surged by 52% in the past month. Revenue projections have experienced a similar uptick.
While the company’s growth has been remarkable, some analysts have advised caution given the volatility of the stock’s movement. Wells Fargo Securities gave the stock an equal-weight rating and remarked that the shares are “already discounting solid upside.” Analyst Aaron Rakers stated, “AI-fueled fundamental momentum, underpinned by engineering-first differentiation, has been nothing less than remarkable and should support sustainable valuation re-rate”.
Before the recent selloff, Super Micro’s market valuation went more than $56 billion, making it larger than long-time semiconductor giants like Microchip Technology Inc. Its 1.8% weighting in the Russell 2000 Index is the most significant single stock weighting the index has had since 1999, according to Bloomberg Intelligence.
With all the dramatic shifts in Super Micro’s valuation, it is clear that the company has become a substantial player in the tech industry, particularly the AI sector. Its future developments will likely attract continued attention from investors and market watchers.
