Super Micro Computer's Turbulent Year: Challenges and Potential Recovery in the AI Hardware Market

This Struggling Artificial Intelligence (AI) Stock Could Be About to Take Off. Here's Why. | The Motley Fool

The developments surrounding Super Micro Computer (SMCI -4.64%) have become some of the most fascinating chapters in the broader artificial intelligence (AI) story. At its peak, shares of Supermicro were up over 300% earlier this year. However, beginning in August, shares entered a prolonged sell-off of epic proportions. Over the last few months, it's been a series of falling dominoes for Supermicro. Yet, what if I told you better days could be on the horizon? I'm going to detail everything that's happening at Supermicro and explain why the stock entered freefall. More importantly, I'll also explore why Supermicro could be on the verge of a turnaround, and what that could mean for investors. There have been so many ongoing storylines at Supermicro over the last few months that's it's legitimately difficult to keep up with all the hoopla. Below is an annotated timeline of each road bump Supermicro has encountered, and some details around the stock movement as a result. While accounting fraud is a serious allegation, I'd caution investors against hitting the panic button. It's important to keep in mind that short sellers such as Hindenburg have a vested interest in seeing a stock price decline. Moreover, in light of all these road bumps, Supermicro has taken some respectable steps in order to address the issues head on and right the ship. In late November, Supermicro announced the appointment of a new auditor firm, BDO USA, P.C. In the same press release, management also shared that the company had submitted a compliance plan to the Nasdaq to avoid delisting. In early December, investors received positive news as the Nasdaq granted Supermicro's "request for an exception" to remain listed on the exchange through Feb. 25, 2025. If Supermicro does not file its 10K by then, the company will fall out of compliance again. Another announcement from earlier this month revolved around a Special Committee formed by Supermicro's Board of Directors. Per the internal review, the Special Committee "determined that the resignation of the Company's former registered public accounting firm, Ernst & Young LLP ("EY") and the conclusions EY stated in its resignation letter were not supported by the facts examined in the Review." On the surface, it looks like Supermicro is finally getting some momentum back, and that the proactive steps from management could very well put the company on a path to turn things around. As the chart below illustrates, Supermicro's forward price to earnings (P/E) multiple of 12.9 is well off prior intra-year highs and is essentially hovering around a low point. The current valuation picture, combined with some of the positive news outlined above, might cause you to think that Supermicro is an absolute bargain right now. There are a lot of moving variables with Supermicro, and at this point, I think just about any piece of news (positive or negative) could cause the stock to whipsaw. To me, there are just too many unknowns surrounding Supermicro at the moment. Investing in the stock is akin to throwing a dart at the wall or flipping a coin -- it just isn't for the faint of heart and likely is best avoided for now.

Better Recovery Story Buy for 2025: Super Micro Computer vs. Intel | The Motley Fool

This year has been an incredible one for many companies, especially technology players operating in the area of artificial intelligence (AI). They've led gains in all three indexes, from the S&P 500 and the Nasdaq to the Dow Jones Industrial Average. In fact, new Dow member Nvidia is heading for the top performance in that index this year thanks to its AI strengths. Investors have piled into AI stocks because the technology promises to be revolutionary, marking history much like the development of the telephone or the Internet. Analysts expect today's $200 billion AI market to top $1 trillion by the end of the decade, so companies and investors getting in on this area now could win big. Still, not every AI company has reaped the rewards in recent times. Super Micro Computer (SMCI -0.94%) and Intel (INTC 3.28%) both have faced challenges in the past months, and this has weighed on their stock performance. Which one is a better recovery story buy for 2025? Let's find out. Supermicro stock blasted higher in the first half of the year, gaining 188%. The company makes equipment such as servers and workstations, and demand from AI customers has been soaring. This has translated into triple-digit quarterly revenue growth. But several pieces of news hurt Supermicro in the second half of the year. First, a short report by Hindenburg Research alleged troubles at the company. Then, Supermicro delayed the filing of its 10-K annual report and later the filing of its 10-Q quarterly report. Meanwhile, the company's auditor resigned, and the late financial filings put it at risk for a Nasdaq delisting. The stock tumbled 67% from the Hindenburg report to its lowest in mid-November. But brighter news emerged in recent weeks. Supermicro found a new auditor and submitted a plan to the Nasdaq to regain compliance -- Nasdaq has since granted an extension to Feb. 25, and Supermicro says it expects to file by that time. So, the worst could be behind Supermicro, setting it up for a potential recovery during 2025. Intel dominates the market of central processing units (CPUs), the key processors that power most computers. But a few problems have weighed heavily on this tech giant. First, it's losing market share to Advanced Micro Devices in the desktop CPU market. Second, Intel failed to get in early on the AI market, and though it's come out with compelling products in recent quarters, it's struggling to catch up to leaders. On top of this, some investors worried about the investment involved in Intel's decision to become a chipmaker, offering foundry services to not only itself but to rivals. Spending has had an impact on the company's free cash flow in recent years. Intel's announcement of a $10 billion cost reduction program, including a plan to cut 15% of its workforce, didn't reassure investors -- and when it was announced in August, the stock sank 26% in one trading session. Most recently, Intel ousted its chief executive officer Pat Gelsinger, naming two executives to share the role while the company searches for a permanent replacement. Considering all of this, Intel is in a key period of transition now, meaning big changes may be ahead in 2025 and beyond. Supermicro seems to be on the right path to recovery, but a key element is missing, and that's the audited financial reports. Though Supermicro says it doesn't expect any restatements, it's important for investors to take a look at the company's latest financial performance before making any investing decisions. And that's why I would keep Supermicro on the watch list right now and hold off on buying the stock. As for Intel, right now it's impossible to know what direction the company will take because the interim leaders have just taken over -- and we don't yet know if they'll make significant moves or maintain the status quo until a new CEO arrives. Will Intel continue with its plans to become a leading chipmaker? That decision alone, whether the answer is "yes" or "no," could result in completely different outcomes for the company. Without visibility on Intel's strategy, it's impossible to make an informed investment decision. So right now, I'll say keep your eye on both of these companies in the new year. But for the moment, it's too early to invest in either no matter how interesting their valuations may look. The message here is, even if a struggling company has reached a turning point, it's still a good idea to approach with caution and not rush into every recovery story until we have an idea of what may be ahead.

Super Micro Computer Dropped 70% from Its High and Is Exiting the Nasdaq 100. Could This Beaten-Down Stock Recover in 2025? | The Motley Fool

The year 2024 represented the best and worst of times for Super Micro Computer (SMCI 1.08%). The server maker started the year with a bang, reporting triple-digit revenue growth, thanks to demand from artificial intelligence (AI) customers. In fact, Supermicro's quarterly revenue this year surpassed annual revenue as recently as 2021. The company also went on to reach other important milestones, such as winning invitations to join the S&P 500 and the Nasdaq 100. All of this helped Supermicro soar 1,200% in just one year to a high in March. But in recent months, the top equipment maker has faced challenges that have weighed heavily on its stock's performance, which has dropped 70% from its high. A Hindenburg Research short report alleged troubles at the company. And Supermicro itself disappointed investors, saying it couldn't file its annual and quarterly financial reports on time. Though Supermicro has offered investors some signs of a turnaround in recent weeks, the company just got another bit of negative news last week: It will be exiting the Nasdaq 100 Index as of Dec. 23. This is part of the index's rebalancing, a time when certain stocks are added or removed. Considering the positives and negatives of recent weeks, could this beaten-down stock recover in 2025? First, here's a quick summary of the company's situation. Supermicro's earnings have taken off in recent quarters as AI customers rushed to order servers and full rack scale solutions for their data centers. The company works hand in hand with chip giants like Nvidia to immediately incorporate their innovations in its products. This means that Supermicro can benefit from their new launches, and one in particular could be important -- the production ramp up of Nvidia's Blackwell architecture, happening this quarter. But the Hindenburg report shook investor confidence, which worsened when Supermicro delayed the filing of its financial reports and its auditor quit. Investors worried about potential financial restatements and a possible delisting from the Nasdaq due to the late reporting. The Nasdaq contacted Supermicro this fall, ordering it to take action or eventually lose its spot on the exchange. Better news followed. The company hired an auditor and agreed to a reporting timetable to regain Nasdaq compliance, and it's pledged to file reports by Feb. 25. Supermicro also reported findings from an independent review of the company's financial reporting practices, and reviewers found no evidence of fraud. Supermicro said it didn't expect any financial restatements. What may be ahead for Supermicro? The Nasdaq 100, an index of the 100 biggest non-financial stocks on the Nasdaq, will remove the company as of next week. The consequences? Funds that track the Nasdaq 100 will sell the stock so they remain aligned with the composition of the index. This could put a bit of pressure on the stock in the short term. Beyond this, one uncertainty remains, and that's Supermicro's financial reports. It's encouraging that the company doesn't expect restatements, but it's still best to wait for the audited reports before saying the company's difficulties are over. Let's get back to the original question: Could this beaten-down stock recover in 2025? Absolutely. The stock is trading for only 11x forward earnings estimates right now, so some aggressive investors might start picking up shares. And if the company's audited reports look good and it avoids a Nasdaq delisting, the stock may head higher -- and make significant progress along the recovery path in 2025. That said, I wouldn't recommend buying Supermicro right now -- even at today's bargain valuation -- because understanding a company's current financial situation before investing in it is crucial. For that, investors need to see the audited financial reports. Yes, Supermicro could be a big recovery story in 2025. Today, however, it's better to put it on your watch list instead of your buy list.

1 Top Artificial Intelligence Stock to Buy Right Now | The Motley Fool

Want to capitalize on the AI surge without overpaying? Check out this troubled tech titan, whose shares should bounce back in the next few years. The stock market is awash in big gains driven by the artificial intelligence (AI) boom. From hardware to software, or infrastructure to supporting services, many companies playing a part in the AI supply chain have skyrocketed in the last two years. But many of the biggest winners in this AI rush look too expensive these days. Overly enthusiastic investors have boosted chip designer Nvidia (NVDA 2.60%) to lofty heights, ignoring a rising tide of rivals. AI systems builder Super Micro Computer (SMCI 0.65%) is a leading gainer despite a financial scandal. At the same time, the rising digital tide didn't lift every available boat. Despite the massive market surge, a few stocks with deep AI ties have not soared to record highs. These companies may have some issues to work out, but some of them still strike me as misunderstood winners. On that note, here's one top-shelf AI stock that looks deeply undervalued in December 2024. This underrated tech giant belongs on your AI radar. I agree that Intel (INTC 0.05%) has seen better days. Sales have been sliding in recent years despite the surging demand for AI chips, and the former Chipzilla is no longer the world's largest semiconductor company by revenue. The stock isn't even among the 10 largest chip names by market cap, and Intel has lost its coveted Dow Jones Industrial Average (^DJI 0.17%) seat to Nvidia. The situation came to a head earlier this month as CEO Pat Gelsinger left the post. The interim leadership team under CFO David Zinsner and client computing group chief MJ Holthaus have already signaled some major changes. They seem interested in spinning off the recently created Intel Foundry business as a stand-alone company, and Intel might raise cash by selling some of its holdings in machine-vision expert Mobileye (MBLY -1.02%). So the Intel you see today is very different from the chip giant that dominated the industry for several decades, and the company will continue to change over the next few years. Meanwhile, Intel's stock is priced for absolute disaster. Shares are trading at just 1.6 times sales and 0.9 time book value. In other words, your average Intel investor feels that they would benefit if Intel stopped running its business, sold all its assets, and found a tax-free method for returning that cash directly to shareholders. But I think that's a miscalculation. Intel has been investing roughly $25 billion a year in its infrastructure over the last three years, up from a long-term average of approximately $15 billion. Most of the expenditure boost went into building or upgrading chip-making facilities around the world, including several sites in America. Intel has been building a world-class chip foundry business, giving U.S. companies a serious alternative to Asian sector giants Taiwan Semiconductor (TSM 0.74%) and Samsung (SSNL.F -28.76%). This is happening at a pivotal time, as politicians in Beijing and Washington are clashing with the increasingly crucial chip industry caught in the middle. Oh, and the demand for more chip-making capacity keeps rising thanks to the aforementioned AI bonanza. Some of Intel's new or improved chip-making factories are already online. Other will start production in stages over the next five years. This is a long-term plan with a significant impact on Intel's business over many years. The company may never dominate the processor design market again, but it is transforming into a different type of sorely needed semiconductor business. And the bargain-bin valuation makes no sense in that light. By 2030, I expect Intel to have earned a price-to-book ratio closer to Taiwan Semiconductor's 8.3. If the company ends up spinning off the foundry division, you'll get to double down on that operation and sell the processor design unit if you prefer. I can't promise a triumphant recovery to full financial health and market respect that quickly, but you're probably looking at radically market-beating stock returns here. My Intel shares aren't going anywhere, and I'm sorely tempted to add some more at these thrifty share prices. In the long run, I think Intel will elbow its way into a position of leadership as American companies keep buying AI hardware, and it's certainly less expensive than Supermicro or Nvidia.

Better Artificial Intelligence (AI) Stock: Super Micro Computer vs. Dell

Artificial intelligence (AI) investing covers a broad range of companies, including hardware, software, end users, and many that cover a large part of this spectrum. On the hardware side, Nvidia (NVDA -1.41%) has reigned supreme as the top stock. However, there are other ways to invest in this space. Companies like Super Micro Computer (SMCI -0.94%) and Dell (DELL 0.41%) make hardware for servers that run these intense AI calculations and are critical in the AI value chain. But which is a better investing buy for 2025? The answer may surprise you. Both companies provide vital infrastructure in the server computing space You're likely familiar with Dell, as you've probably seen a commercial or used one of its laptops or desktops. However, that part of the business isn't what I'm talking about here. Dell also makes servers that can be used for a wide variety of computing tasks, but the most noteworthy for investors right now is AI. Super Micro Computer (or Supermicro) is also in this space but represents a more premium option than Dell. Supermicro's servers are highly configurable for workload size and are cutting edge with their liquid-cooled technology, which delivers up to 40% energy savings and allows them to be placed in a much smaller room because less airflow is needed. Both companies are viable options in this space, but which one is doing better? Supermicro and Dell have two vastly different growth rates Dell is a tale of two companies, as it has its PC business (client solutions group) as well as the server segment (infrastructure solutions group). These two segments are performing directly opposite of each other, which drags down Dell's overall performance. Data source: Dell. Note: Q3 FY 2025 ended Nov. 1. Clearly, the infrastructure solutions group is driving the business, and chief operating officer Jeff Clarke had this to say about the division: Interest in our portfolio is at an all-time high, driving record AI server orders demand of $3.6 billion in Q3 and a pipeline that grew more than 50%, with growth across all customer types. That's pretty definitive, and it's clear that Dell's infrastructure group will continue to see success. But Supermicro is also strong, if you can trust what management says. The Supermicro investment thesis isn't as straightforward as Dell's, as Supermicro has been caught up in accounting malpractice allegations for the past couple of months, which has depressed its stock. This included a short-seller report, a probe by the Department of Justice, and its auditor resigning, which is often a telltale sign of trouble. However, a third-party special committee led by a forensic accounting firm found "no evidence of misconduct." This cleared Supermicro's name, but there is still some distrust in the business, as this wasn't the first time Supermicro's accounting practices came under scrutiny. Supermicro still hasn't published finalized Q1 FY 2025 (ended Sept. 30) results, as it is waiting for its new auditor to sign off on them, but management did provide an update. The company expects revenue between $5.9 billion and $6 billion, indicating 181% growth at the midpoint. However, this did not meet the expectations laid out in Q4, as management guided between $6 billion and $7 billion in revenue. Furthermore, Q2 revenue is expected to be between $5.5 billion and $6.1 billion, which would indicate revenue falling quarter over quarter at the midpoint. That's not a good sign, considering that nobody in the industry has forecast a slowdown in AI spending. Part of this could be because some clients (like Nvidia) are allegedly shifting orders around due to Supermicro's inability to meet demand. This bears watching throughout the year. From a valuation standpoint, it's basically a wash. Each of these two companies trades for nearly the exact same price-to-forward-earnings valuation. DELL PE Ratio (Forward) data by YCharts With Supermicro growing faster, one could argue that it is the cheaper stock. But that all depends on your trust in management. At the end of the day, Supermicro may be in the clear, but I find it hard to continue to invest in them after a lot of turmoil. Dell is also a tough one because its client solutions group is not doing well. As a result, I think investors are better off investing in the tried-and-true AI hardware company: Nvidia. It's easy to overthink investment ideas, and buying one of these two instead of Nvidia is one way of overthinking this trend.