For weeks after it posted strong quarterly results, Super Micro Computer (SMCI) continued a long-winded rally. Shares traded at $307.67 on Jan. 18, 2024, and as high as $1,077.87 on Feb. 17, 2024.
Unexpectedly and in usual fashion when profit-takers enter the trade, SMCI began its plunge at 9:41 am last Friday in the morning. It ended the day down by 19.99%, just below the 20.00% drop. By definition, 20% is correction territory for indices. The drop is the worst day in more than six months.
SMCI makes supercomputers having components like GPUs, racks, motherboards, and chassis. In its Q2, it posted a non-GAAP EPS of $5.59. Revenue soared by 103.3% to $3.66 billion. The company issued a Q3 net sales forecast of $3.7 billion to $4.1 billion and a net income of up to $6.01. SMCI stock closed at $803.32. So, this would annualize to $24.04 in EPS a year or $803.32/$24.04 for a forward P/E of 33.4 times.
Valuation is the market’s only reasonable worry for SMCI stock. The PEG and P/E GAAP are at high multiples. In addition, shares trade at twice the sector median’s EV/EBIT rate. Fortunately, the AI spending boom shows no sign of slowing down. China bought billions of dollars worth of chips in the last year to avoid the U.S. trade restrictions. Today, firms like Meta Platforms (META) and Tesla (TSLA) are buying AI equipment.
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