SMCI Stock Tumbles, Room for Reversal?

The company's latest earnings report disappointed investors as recession concerns increased, leading to questions over whether its optimism in AI can restore its share price.

The Long Road Down

SMCI's stock price rose over 400% in the first quarter based on expectations of strong demand from AI. However, it has since fallen to less than half the late-March peak. The price went to drop a further 13% following earnings missing revenue and profit expectations. Investors were troubled by the reduced gross margin, suggesting the company is not capitalising fully on current demand.

After extensive losses in the second and third quarters, the company's price-to-earnings (P/E) ratio stands at 25.3x, below the S&P 500 average. Have investors sold off the stock excessively, with room now for a rebound to earlier highs? At least analyst price targets average $900 per share, indicating potential underlying strengths to support the SMCI going forward.​

A Road Back Up?

Management remained optimistic about the company's prospects, citing record demand for AI solutions. The stock price is still double what it was a year ago, though, and the company is progressing with a 10-for-1 stock split, which can help boost the share price as it makes the stock more accessible. The split will become effective on 1st October.

Analysts have not lost their positive outlook thanks to AI. Bank of America estimates that SMCI can expand its market share in the AI servers segment over the next few years thanks to bringing new technology to the market quicker than the competition. Analysts at KeyBanc are more optimistic, suggesting that SMCI could obtain as much as 23% of market share by the end of next year. Not only does it mean a larger percentage of the pie, but a much bigger pie as spending on AI is expected to increase by over 600% by 2028, according to JPMorgan.

Despite the disappointment, Super Micro did increase its revenue by 143% and profits by 78% compared to the prior year. That would be an otherwise fantastic growth were it not for the oversized expectations surrounding AI.​

SMCI Nears 100% Extension

The recent decline following a bearish flag has brought the share price of SMCI down to $480, with little room to $450, the 100% extension of the previous downward leg that formed post-record highs, suggesting a potential trend reversal. However, as the shares trade below $700, the risk of further declines persists, potentially as low as $275 if support is lost at $360. On the flip side, should the resistance at current levels now provide support, buyers may eye resistance levels at $850 or $950 or its stock split equivalent.​

Source: SpreadEx / SMCI

Key Takeaways

SMIC's latest earnings report disappointed investors as recession concerns increased, leading to questions over whether its optimism in AI can restore its share price. Despite the disappointment, Super Micro did increase its revenue by 143% and profits by 78% compared to the prior year. Thanks to AI, analysts have not lost their positive outlook, expecting the company to expand its market share in the sector over the coming years.