With Sector-Wide Call Skews Fading, Super Micro Computer (SMCI) Could Not Have Announced Its New Equity Offering at a Worse Time

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With Super Micro Computer (SMCI) shares continuing to scale unfathomable zeniths in affinity with NVIDIA’s meteoric rise, the manufacturer of high-performance servers has been raising additional liquidity like there is no tomorrow, with this mercantilist attitude trickling down to corporate insiders who’ve dumped nearly 20x as many shares as they’ve bought over the past three months. Yet, SMCI seems to have overplayed its hands today after announcing a new equity offering.

Of course, there is a solid reason behind Super Micro Computer’s ongoing affinity with NVIDIA. After all, the company’s biggest client is NVIDIA, and its second-biggest client is an entity that is backed by NVIDIA. However, with SMCI shares up over 300 percent so far this year, as of yesterday’s closing price, the stock’s nosebleed valuation has been a cause of concern for many discerning investors.

Super Micro Computer decided to go all-in today by announcing a new equity offering of 2 million shares. The server manufacturer was banking on NVIDIA’s AI-focused event yesterday to reinvigorate the market’s animal spirit. This gambit, however, seems to have fallen flat on its face, with SMCI shares down over 10 percent at the time of writing.

NVIDIA GTC 2024 Ends Up As a “Sell-the-News” Event

As we noted in a dedicated post yesterday, NVIDIA made a series of major announcements yesterday:

  1. A new AI & Tensor Core GPU architecture, called Blackwell.
  2. The GB200 Grace Blackwell Superchip that combines one Arms-based Grace CPU with two Blackwell B100 GPUs. The system can deploy an AI model with 27 trillion parameters. For reference, OpenAI’s GPT-4 has just 1.7 trillion parameters. The chip is expected to be 30 times faster at tasks like serving up answers from chatbots.
  3. A new server, called the GB200 NVLink 2, that combines 72 Blackwell GPUs with other NVIDIA peripherals designed to train AI models.
  4. NVIDIA Inference Microservice, or NIM for short, that forms a part of the company’s enterprise software subscription. The software allows subscribers to use NVIDIA’s older GPUs for AI inference, a process where trained AI models use new data to draw (or infer) conclusions.
  5. A new humanoid robot project called GROOT.

Wall Street has been quite receptive to NVIDIA’s latest announcements, as indicated by Goldman Sachs raising its price target on NVIDIA shares to $1,000.

But, the absence of any “big surprises” has paved the way for a “sell the news” type of move in NVIDIA and its affinity stocks, including Super Micro Computer.

The lack of any buying follow-through has allowed the call skew in the semiconductor sector to fade, precipitating today’s moderate sell-off.

Super Micro Computer Enters Bear Market Territory

Super Micro Computer Stock Price

Over the past five trading days, Super Micro Computer shares are down over 20 percent, officially entering bear market territory.

The stock is down over 10 percent just today, with investors viewing Super Micro Computer’s new share offer with trepidation against a backdrop that seems ripe for an aggressive pullback. After all, the company just raised around $1.5 billion by issuing convertible notes in February.

Super Micro Computer’s blistering rally qualified the stock to be included in the S&P 500 index just yesterday. However, as we noted in a previous post, the stocks that are added to the S&P 500 index go on to show material underperformance. For instance, AIV – the stock that Tesla replaced in the benchmark index in 2020 – managed to outperform the EV giant’s stock market gains by 78 percent over the next 6 months.

Looking ahead, it seems that semiconductor stocks, including NVIDIA and Super Micro Computer, are headed toward a modest valuation reset.

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