After several years of dodging controversies, Super Micro Computer (SMCI) shares broke down last week. The stock traded near lows not seen since late 2024.
The U.S. Justice Department said on March 19 that a “U.S. manufacturer” smuggled more than $2.5 billion in U.S. AI hardware to China. That violated export laws. The server firm’s products had Nvidia (NVDA) AI chips. The indictment wrote that there are controls in place to protect U.S. national security and foreign policy interests.
In response, the company placed two staff on leave (Liaw and Chang)and cut its ties with a contractor (Ting-Wei Sun).
The fall-out in AI names sent nuclear energy firms lower. Vistra (VST) and Constellation Energy (CEG) formed a downtrend that began last September. VST stock dropped by 12.8% last Friday. CEG stock fell by 10.9%. Indirectly, the Iran invasion created an oil energy crisis. This will cause global inflation to rise. To price in those risks, the stock market mechanism assigns a higher risk premium. VST stock trades at a premium, where its non-GAAP P/E is 30.7 times. That is over 50% above the sector median.
Constellation Energy trades at a 30x P/E and is also valued at 50% above the sector median.
Your Takeaway
The latest geopolitical conflict in Iran and the indictment of SMCI staff are the latest warnings that will sour the stock market’s sentiment.
