Demand for cloud infrastructure for artificial intelligence (AI) has been soaring. As a supplier of high-performance, high-efficiency server and storage solutions for data centers, Super Micro Computer (SMCI +5.58%) is booming.
But the stock is another story, as Supermicro announced it plans to raise $7 billion to fund equipment purchases to satisfy its backlog. Shares plunged on that news and were at the morning low down 16.8% as of 11:00 a.m. ET.
Image source: The Motley Fool.
Is it good or bad news?
Supermicro said a surge of orders in recent weeks has prompted the capital raise. That sounds like great news. It said it now needs to fund equipment purchases for the $39 billion in AI server orders it has received in recent weeks. It will raise $7 billion in capital through an equity offering and an equity-linked financing package.
The fear is that component prices are increasing, and server suppliers like Supermicro won't be able to pass those higher costs to customers. The result will be lower gross margins. The stock offering will also dilute existing shareholders.
NASDAQ: SMCI
Key Data Points
Margin pressure is the real driver of today's stock action, though. Supermicro stock has recently recovered from declines driven by legal probes into export controls and a related lack of investor trust. Margins have also been recovering, helping investors feel more comfortable buying the stock with the strong underlying business conditions.
It's a stretch to think the company can pass along higher component prices, though, given strong competition from other AI server makers like Dell Technologies. That has investors bailing out of Supermicro shares today.
