Super Micro Computer (SMCI +8.79%) just announced a blowout quarter. Sort of. Super Micro's fast-growing sales increased 5% sequentially from the previous quarter but exploded by more than 200% compared to the prior-year period.
That's because Super Micro is in the business of providing server and storage system components to data centers building artificial intelligence (AI) capacity. And its bottom-line earnings expanded even more than sales in the quarter. But investors sold the stock in droves anyway today for a couple of reasons.
Predicting the future for Super Micro
One big reason the stock tanked after earnings is that it had already soared by more than 700% over the last year as investors anticipated the huge jump in sales. Another is that the costs to generate those growing sales are increasing even faster.
NASDAQ: SMCI
Key Data Points
Super Micro's gross margin dropped from 17.6% in the year-ago period to 15.5% this year. That's because there's growing competition in this fast-moving sector. Neither Super Micro nor its competitors make the powerful semiconductor chips needed for AI applications. They assemble the systems that include those chips to install in the booming data center market.
But that data center growth is exploding along with the growth in AI use cases. That's why Super Micro increased its sales guidance and expects revenue to more than double for its fiscal year 2024 (ended June 30) versus last year.
The AI data center supercycle is driving Super Micro's sales and earnings. Even competitors like Dell Technologies are seeing their backlogs double for their AI server business. When the cycle comes to an end, though, the stock of a pure play like Super Micro could drop as fast as it has soared in the last year.
For investors adept at closely following the business and the macro environment, Super Micro could make a great investment after today's decline. But those who take a more hands-off investing approach might want to pass on this volatile name.
