The Shares of Super Micro Computer have been Surging, but Potential Factors Might Lead to a Deceleration
In 2021, Super Micro Computer, often seen as the AI stock to watch, had quite a rollercoaster year. Going from being predicted as the next AI giant to facing scrutiny over its financial reliability and accounting practices, the stock took a tumble, hitting a low at $17.25 on November 15. Yet, it has since bounced back, trading around $30 as of recent times. With a new auditor in place and planned financial filings due by February, things are looking more peaceful for investors.
Nonetheless, it's essential not to rush into buying this rally. Despite the appealing valuation, Super Micro still carries risk and potential for a significant pullback in 2025.
Has Super Micro's growth rate started to decelerate?
As a growing AI powerhouse, Super Micro's success is founded on earnings growth. However, with a new auditor taking the reins, the company hasn't submitted its completed quarterly results since August. In November, Super Micro did release preliminary Q1 FY 2025 results, showing a projected net sales range of $5.9 billion to $6 billion. This falls short of the expected $6 billion to $7 billion, raising concerns about a potential slowdown in demand.
Even if the financial reports are submitted on time, thegrundlichkeiten may not be as appealing as investors desire. Super Micro's sales would still bring a considerable 183% increase YoY, but its gross margins remain strikingly low.
Might tighter accounting procedures squeeze Super Micro's thin profit margins?
With concerns over accounting controls and procedures, Super Micro may have no choice but to invest in additional personnel and protocols to strengthen its financial integrity. These extra costs could put further strain on Super Micro's already thin profit margins. During Q1, Super Micro had a modest 13.3% gross margin, which, although better than its previous quarter, is still well below industry norms. A narrower profit margin makes it challenging for Super Micro to realize profit from incremental revenue gains.
Is Super Micro's stock a gamble right now?
With so many uncertainties surrounding Super Micro, predicting its performance in 2025 might seem like a lost cause. If the financial results are solid and growth prospects remain strong, Super Micro could potentially surge. However, if the numbers don't meet expectations or if the margins deteriorate, there's a risk of a sell-off. Should Super Micro fail to release financials by the Nasdaq's deadline, the stock could also take a nosedive.
Given the volatility, a wait-and-see approach might be wisest for those with lower risk tolerance.
In an attempt to alleviate concerns over its financial reliability, Super Micro might invest more money into improving its accounting procedures, potentially putting further strain on its thin profit margins. The seemingly improved financial situation of Super Micro, with a new auditor and planned financial filings, may not be as appealing to investors as they hope, considering its still low gross margins. Despite the bounce back from its 2021 lows, Super Micro's stock remains a risky investment due to potential crashing in 2025, given the uncertainty surrounding its financial performance and growth rate.
