Super Micro Computer (SMCI +24.38%) stock -- a company that sounds like it took its name from a 1980s comic book -- soared 16.6% through 11 a.m. ET Wednesday morning despite reporting mixed earnings last night.
Heading into the company's Q3 report, analysts forecast Super Micro would earn $0.62 per share, pro forma, on $12.4 billion in sales. Super Micro beat on earnings, reporting $0.84, but whiffed on sales -- only $10.2 billion.
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Super Micro Q3 earnings
Super Micro's sales surged 122% year over year, but declined 20% quarter over quarter. The real improvement was in the profitability of these sales. Gross profit margin inched up 30 basis points to 9.9% from last year's Q2, and gained 360 basis points when compared to last quarter.
Earnings calculated under generally accepted accounting principles (GAAP) weren't quite as good as the pro forma number noted above, but the company still earned $0.72 per share, GAAP -- more than quadruple last year's quarterly profit.
More concerning than Super Micro's profit, though, is what the company revealed in its cash flow statement last night: the fact that free cash flow year to date has flipped from strongly positive (more than $690 million at this time, last year) to frighteningly negative -- $7.7 billion in cash burned.
NASDAQ: SMCI
Key Data Points
What's next for Super Micro stock?
CEO Charles Liang believes the investment is necessary as Super Micro works to meet "massive demand" for artificial intelligence servers. Still, at its current pace, Super Micro could easily burn through more than $10 billion this year.
Long story short: Investors are buying Super Micro based on improved "profits" and its promise to bring in $38.9 billion to $40.4 billion in sales this year. Personally, I'm much more worried about the cash flowing in the other direction.
