Shares of Super Micro Computer (SMCI 8.89%) were sliding for the second day in a row today. Following a sell-off yesterday that seemed related to its inclusion in the S&P 500, Supermicro stock was down sharply again on Tuesday, this time on news of a secondary offering.
The high-flying AI server specialist filed this morning to sell 2 million shares, diluting existing shareholders by approximately 3.6%.
The company said it planned to use those proceeds for capital support of its operations, the purchase of inventory, manufacturing capacity expansion, and increased research and development (R&D) investments, as well as other working capital purposes.
Investors often balk at secondary offerings as they dislike being diluted and prefer companies to fund growth out of profits or debt. Secondary offerings also sometimes lead the market to believe that the stock is overvalued, much like buybacks are a sign that they are undervalued.
Supermicro stock was down 11.1% as of 10:52 a.m. ET on the news.
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Fueling the growth machine
Supermicro's revenue doubled in its most recent quarter, and the company needs to stay ahead of competitors as the competition in the AI server market heats up. Supermicro CEO Charles Liang was quoted in The Wall Street Journal saying, "We need more money because demand is so strong," and the Nvidia chips that power its servers cost roughly $25,000 each, meaning they're expensive to build.
Leveraging its lofty stock price to strengthen its competitive advantage makes sense.
Supermicro was one of several AI stocks that fell today in the wake of the kickoff of Nvidia's GTC conference yesterday, and investors also shrugged off new products from Supermicro, including AI systems built on Nvidia's new Blackwell chip.
Has Supermicro stock peaked?
Even after today's sell-off, Supermicro stock has still tripled this year, but it's also been incredibly volatile and is now down roughly 30% from its intraday peak on March 8.
The volatility in Supermicro stock is unlikely to go away, but it's also a mistake to believe that the stock won't rally to a new peak.
Stepping on the accelerator is the right move for Supermicro to fend off competition from Dell, HPE, and others. Supermicro's hypergrowth speaks for itself and its valuation is reasonable if it can maintain its leadership in the AI server market.
With its close partnership with Nvidia and $2 billion about to pour into its coffers, the odds that it can remain the leader still seem to be in its favor.
