Shares of Super Micro Computer (SMCI -9.82%) are falling on Monday, down 8.5% as of 3:30 p.m. ET. The jump comes as the S&P 500 (^GSPC 0.96%) and Nasdaq Composite (^IXIC 0.94%) were both up 0.8%.
Super Micro announced a new debt offering that sparked concerns of dilution. The sell-off made it the worst-performing stock in the S&P 500 today.
Super Micro to raise $2 billion
Super Micro announced it is raising $2 billion through a convertible note offering that matures in 2030. Only qualified institutional buyers can take part in the offering. The company plans to use the funds for "general corporate purposes, including to fund working capital for growth and business expansion."
The move sparked fears of dilution, which usually follows a convertible note offering like this. In order to combat the dilution, the company will use $200 million to enter into capped call transactions. The move is commonly used to soften dilution, but investors clearly did not feel it would be enough.
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Super Micro has rebounded
The company has seen its share of controversy, narrowly avoiding a Nasdaq delisting just months ago by refiling financials, replacing its CFO, and adding board members. It was the subject of a damning short report detailing financial irregularities and questionable business practices.
Despite this, the company's stock has largely recovered as artificial intelligence (AI) giant Nvidia continues to rely heavily on the company, apparently unfazed by the allegations. Despite the implicit blessing of Nvidia's continued partnership, the track record of financial misconduct makes me nervous, and I would avoid the stock.
