Super Micro Computer (SMCI +3.18%) stock got hit hard with sell-offs in Monday's trading. The server specialist's share price ended the day down 12.5% amid a 1.8% decline for the S&P 500 index and a 3.5% decline for the Nasdaq Composite index.
NASDAQ: SMCI
Key Data Points
Supermicro sank today as investors considered risk factors related to the new R1 artificial intelligence (AI) model from DeepSeek -- a Chinese AI start-up. The software was launched last week and is making waves in the tech world due to performance that matches or beats OpenAI's latest ChatGPT in some respects. Even more striking, the software was reportedly trained using hardware that's less advanced than what most leading U.S. tech companies are using and at a far lower cost.
Nvidia's advanced graphics processing units (GPUs) are the key hardware component in Supermicro's high-performance rack servers for AI, and investors are reacting to the possibility that DeepSeek's R1 will usher in an era in which AI systems are less reliant on super powerful hardware. With today's pullback, Supermicro's share price is now down 75.5% from the high it hit last year.
Is Supermicro stock a buy right now?
There's still a lot that isn't clear about how DeepSeek's R1 was developed and trained, and it's possible that some reports about its creation are understating the extent to which advanced processors from Nvidia were used. The overall demand backdrop in the AI infrastructure space will likely continue to be very strong, and ramping data-center buildout initiatives should translate into strong server sales. But that doesn't necessarily mean that Supermicro stock is a great buy right now.
While some key details surrounding the creation of DeepSeek's R1 are still missing, the sudden emergence of the powerful new model has highlighted AI as a key area of competition on the world stage and raised concerns that the U.S. may be losing its lead over China. With this dynamic likely to become even more significant going forward, one risk factor for Supermicro stock could take on added weight.
Last month, the U.S. Department of Commerce reportedly launched a probe to determine how Nvidia chips that had been banned from being exported wound up in China. In turn, Nvidia reportedly asked Supermicro and other customers to look into whether their distribution channels had led to their advanced processors being sold to China.
Additionally, Supermicro has yet to file its delayed 10-K report from its last completed fiscal year, which ended June 30. The report was delayed to look into potential accounting issues, and because the company's former results auditor resigned and was replaced by a new auditor. If the company were to make significant downward revisions to previously stated results, its share price could plummet below its already depressed levels. So while Supermicro stock has the potential for explosive upside at current prices, it continues to look like a very risky investment.
