Super Micro Vertical Stock Move Suggests ‘Casino Mentality’

(Bloomberg) — Super Micro Computer Inc.’s lengthy rally came to a shuddering halt on Friday, with a selloff that threatened to derail what had been set to be the server maker’s best week on record.

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While the stock initially rose, it subsequently turned lower to drop as much as 20%, its biggest intraday percentage decline since August. The stock had risen more than 35% this week before Friday’s decline, though it remains on track for a double-digit gain for the week. Should it end the session lower, that would come in the wake of a nine-session run of gains, its longest such streak since 2016.

Despite Friday’s drop, recent gains show how Super Micro has become one of the hottest names in artificial intelligence. The stock has risen in 18 of the past 20 sessions, through Thursday, and has more than tripled this year. That follows a gain of 246% over 2023.

“When things are really ripping like this, it isn’t institutions wanting to hold something as a long-term investment, it is a casino mentality for people playing momentum and taking shots,” said Michael Matousek, head trader at US Global Investors Inc. “I’m sure some people are getting run over trying to short this thing, and while others have probably done well, catching something like this really comes down to luck.”

Total options volume more than doubled the average over the past month – led by newly-created positions in puts expiring Friday. The most active contract protects against a 4% dip by the end of the session. Investors bid up the price of the put throughout the day, signaling added demand for downside protection as the shares slumped.

Along with the rally, Chief Executive Officer Charles Liang has seen his wealth quadruple this year to $7.8 billion, making him the biggest percentage gainer on the Bloomberg Billionaires Index of the world’s 500 richest people.

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“We deliver the best generative AI platform in the world,” Liang said in an interview on Bloomberg TV Friday when asked whether the company was fairly valued. He added that the company could hit $25 billion in revenue — if only it had enough semiconductors. “There is a chip shortage — once we have more supply from the chip companies, from Nvidia, we can ship more to customers,” Liang said.

The company generated $7.1 billion in revenue in its 2023 fiscal year, and it is projected to make $14.5 billion this fiscal year, according to data compiled by Bloomberg.

The San Jose, California-based company has become a darling for investors wanting exposure to artificial intelligence and the infrastructure such as chips and servers that run AI applications. Bank of America, which started coverage on the stock with a buy rating and Street-high price target earlier this week, expects the market for AI servers to grow at an average compound annual growth rate of 50% over the next three years, and it said it expects Super Micro will be a primary winner of that growth.

Growth expectations are so robust that Super Micro doesn’t trade with the kind of nosebleed valuation that mark other investor favorites. Shares trade at 39 times estimated earnings, compared with more than 90 for Arm Holdings Plc, the chip designer that recently gave a bullish sales forecast that it attributed in part to AI spending. Nvidia Corp, perhaps the most prominent beneficiary of AI interest, has a multiple of about 34.

It’s preliminary quarterly results released last month far exceeded expectations, and it subsequently raised its revenue forecast.

Wall Street has taken notice. The analyst consensus for Super Micro’s net 2025 earnings has risen by 52% over the past month, while the view for revenue is up by a similar degree, according to data compiled by Bloomberg.

Some analysts have cautioned about the scale of the stock’s move. Wells Fargo Securities on Friday started coverage with an equal-weight rating, saying shares are “already discounting solid upside.” Still, analyst Aaron Rakers said the company’s “AI-fueled fundamental momentum, underpinned by engineering-first differentiation, has been nothing less than remarkable and should support some sustainable valuation re-rate.”

The rally had pushed Super Micro’s market valuation to more than than $56 billion at one point, making it larger than long-time semiconductor mainstays like Microchip Technology Inc. It’s weighting of 1.8% in the Russell 2000 Index is the largest single stock weighting the index has seen going back to 1999, according to Bloomberg Intelligence.

–With assistance from Kristine Owram, Carly Wanna and Brody Ford.

(Updates trading and CEO comments.)

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