Super Micro Computer's $2 Billion Convertible Note Offering: AI-Driven Expansion Amid Market Volatility

Super Micro shares fall on planned $2 billion convertible debt offering

The Super Micro Computer headquarters in San Jose, California, on Dec. 3, 2024. Super Micro Computer shares fell about 6% on Monday after the server maker said it plans to offer $2 billion in convertible notes, maturing in 2030. A company's stock often falls on the announcement of a convertible offering because the eventual conversion to equity could dilute existing shareholders' stakes. Super Micro, which has seen its business boom due to soaring demand for Nvidia's artificial intelligence processors, said in a press release that it plans to use the proceeds from the offering for "general corporate purposes, including to fund working capital for growth and business expansion." It also said it would spend about $200 million to repurchase its stock from the note issuers. Even after Monday's slide, Super Micro shares are up close to 40% so far in 2025 as the company remains one of a handful of server makers that can sell systems based around new chips from Nvidia, Advanced Micro Devices, and Intel soon after they start shipping. The stock has been viewed by Wall Street as an AI pure play that will appreciate with tech megacap companies expected to spend hundreds of billions of dollars on data centers to support AI workloads. Super Micro also secured a major contract with a data center in Saudi Arabia when President Donald Trump visited the Middle East in May. Super Micro "has emerged as a market leader in AI-optimized infrastructure," Raymond James analysts wrote in a report last month, saying that 70% of the company's revenue was attributable to AI. The analysts recommend buying the stock. Investors soured on Super Micro in March and April on concerns about tariffs, and in May the company slashed its fiscal 2025 guidance and chose not to reiterate its previous forecast for $40 billion in fiscal 2026 sales, due to tariff and AI chip uncertainty. The stock has recouped some of those losses but is still trading well below its high for the year reached in February. Super Micro had a tumultuous 2024 largely because of accusations of accounting irregularities, and was forced to refile financials with the SEC in order to avoid delisting from the Nasdaq. Super Micro also named a new auditor, removed its CFO and named additional members to its board of directors.

Supermicro's stock falls hard on $2B convertible notes offering

Supermicro's stock falls hard on $2B convertible notes offering Shares of Super Micro Computer Inc. fell almost 10% on Monday after the company announced a convertible note offering worth $2 billion that's set to mature in 2030. The company, which has become one of the biggest beneficiaries of growth in the artificial intelligence industry due to soaring demand for the Nvidia Corp. graphics processing units that power its servers, said the proceeds of the sale would be used for "general corporate purposes, including to fund working capital for growth and business expansion. It will also set aside around $200 million to buy back stock from note issuers. According to Supermicro, it could potentially add on another $300 million of the notes if there's sufficient demand for them. The notes will be offered exclusively to qualified institutional buyers, and can only covert to stock or cash under certain conditions. As part of the deal, the company has also set aside around $200 million to buy back stock from note issuers. The stock decline isn't surprising, as the eventual conversion of convertible offerings means the value of existing shares could ultimately be diluted. GuruFocus analyst Khac Phu Nguyen said Supermicro is using a complex strategy known as "capped call transactions" to try and minimize the share impact if and when the notes are converted, but it means that the institutions will be buying and selling both the stock and derivatives, potentially causing "unusual volatility", especially during conversion windows. Still, he adds that the offering is a bullish signal overall that the company believes it will grow. Even with the latest decline, Supermicro's stock is still up more than 34% in the year to date, as the company is only one of a handful of server makers that have access to the latest chips from Nvidia and other chipmakers, such as Advanced Micro Devices Inc. and Intel Corp. Supermicro is widely considered by Wall Street to be an "AI pure play" and many investors expect that it will continue to appreciate as hyperscale data center operators make good on their promises to invest billions of dollars in building out their AI infrastructure. Analysts from Raymond James said in a note last month that Supermicro has emerged as one of the market leaders for "AI-optimized infrastructure", which accounts for more than 70% of its revenue. The stock was rated as a buy. Supermicro was recently boosted after landing a major contract with Humain, a newly launched AI company that's backed by Saudi Arabia's Public Investment Fund, announced when U.S. President Donald Trump visited that country in May. The company's stock has had a rocky ride over the last 12 months, falling sharply last year when concerns were raised about its accounting practices, raising fears that it could be delisted from the Nasdaq if it didn't get its act together. The company ended up filing its delayed financial reports just hours before the exchange's deadline for doing so was set to expire, and its stock soared to a new all-time high. However, investor enthusiasm soured after Supermicro cut its outlook in May, citing tariff-related uncertainty.

Supermicro (SMCI) Will Use $200 Million From Its $2 Billion Convertible Notes To Buy Capped Call Options On Its Stock

This is not investment advice. The author has no position in any of the stocks mentioned. Wccftech.com has a disclosure and ethics policy. Supermicro (SMCI), a prominent player in the GPU-as-a-Service sphere and a leading retailer of liquid-cooled AI server racks, is down around 7 percent today as the specter of further dilution takes hold. To wit, Supermicro has now announced that it intends to raise at least $2 billion by offering its convertible senior notes to eligible investors. The initial purchasers of these notes, which become due in 2030, will also receive an option to buy another $300 million worth of convertibles, bringing Supermicro's total potential haul to around $2.3 billion. In what is a critical tidbit, these notes will carry a premium of between 32.5 and 37.5 percent, as per a report by Bloomberg. For the benefit of those who might not be aware, a conversion premium refers to the extra amount that investors pay for the right to convert a particular note into equity shares. Essentially, this is the difference between a company's current share price and the conversion price of the notes. So, if Bloomberg's reporting pans out, Supermicro will offer its convertible notes at a conversion price of between $55 and $57.5, assuming SMCI's current share price of $41.8 holds through the deal negotiation phase. Do note that Supermicro will use $200 million from the proceeds to finance capped call transactions, which involve a company buying call options - which are typically subject to a cap - on its own shares and are used to limit the extent of the ensuing dilution. Despite this capped call clause, investors appear perturbed by the specter of dilution in Supermicro shares, as is evidenced by the current 7 percent decline in the stock price. This comes as Supermicro's CFO, David Weigand, recently liquidated 67,000 shares, equivalent to 43 percent of his erstwhile share holdings, at an average price of $44.02 per share. As we had noted at the time, an elevated level of insider selling is often indicative of management's internal calculus that a company's share price might be elevated. In light of today's price action in Supermicro shares, that calculus stands vindicated. Meanwhile, Supermicro has now inked a "multi-year partnership agreement" with DataVolt, a leading Saudi data center company. According to Goldman Sachs, the deal could feasibly entail $5 billion in annual revenue and an annual EBIT of around $200 million for Supermicro, based on an assumed contract period of 5 years and a built-in margin of around 5 percent.

Super Micro Computer's $2B Note Signals Strategic Expansion, Not Hype | Investing.com UK

Super Micro Computer (NASDAQ:SMCI), Inc. has doubled down on AI-driven growth. The server company plans to sell a loan worth $2 billion via convertible senior notes to institutional investors. In addition to the $2 billion borrowing plan, which is due June 15th, 2030, Supermicro placed an option for an extra $300 million if there is demand. Being an unsecured senior debt, Supermicro's borrowing is not backed up, but investors are repaid before all other debt obligations. In short, based on the promise of AI growth, Supermicro is raising cash for the immediate expansion of server operations, while large investors may convert the loan later into SMCI stock. If the funding is successful, together with the extra $300 million option, this would indicate that committed investors expect SMCI stock to rise significantly. However, because the conversion into stock can dilute the value of existing shares. It is now a question of whether Supermicro can offset potential dilution of shares with significant server output to AI data centers. In mid-May, we extensively covered Supermicro's momentum in the global server market, noting that this sector grew by 73.5% in 2024, leaving investors with a compound annual growth rate (CAGR) of 16.3% through 2029. Supermicro is ranked among the top server players, sandwiched between Dell Technologies (NYSE:DELL) and Hewlett Packard, according to the International Data Corporation (IDC). After President Trump visited Saudi Arabia, together with the leading tech/AI/defense companies, it became even more apparent that Supermicro's role in the AI data center business is aligned for strategic partnerships. Namely, Saudi's DataVault, the Kingdom's largest data center company, selected Supermicro for a $20 billion deal to fill up planned AI factories. As we noted back in mid-May, under the umbrella of $600 billion worth of commitments lies the greater push to secure US hegemony. The present Iran-Israel war is also a part of that plan, by which the US would secure the Middle East choke point for global trade via the Strait of Hormuz. Likewise, this would further plunge Europe into a vassal relationship with the US, even more so than just the bombing of Europe's Nord Stream pipelines for cheap Russian gas. In a 2009 paper titled Which Path to Persia?, The Brookings Institution detailed the plan to topple Iran, which is now playing in real-time. At this stage, the paper suggested that "it would be best to wait for an Iranian provocation" in order to expand operations. It is quite significant that nearly the entire US political class is aligned with this paper, regardless of parties, domestic sentiment or expenditure of political capital. This suggests it is likely Iran's "regime" will be toppled. And if that is the case, it is likely that Supermicro will get to serve Iran's large underserved data center market. And if regional threats subside, it is also likely that other gulf states like Saudi Arabia and UAE will double down on AI data centers to secure stability. As we've maintained all along related to Larry Ellison and Tony Blair Institute for Global Change (TBI), the primary purpose of AI is to implement a governance layer by which behavior is shaped and surveilled on a granular, automated level. With or without a toppled Iran, this AI-driven governance layer would be needed, benefiting companies like Supermicro. *** Neither the author, Tim Fries, nor this website, The Tokenist, provide financial advice. Please consult our website policy prior to making financial decisions.