Super Micro Computer, Inc. (SMCI): AI Dependency and Hindenburg’s Hit
We recently published a list of 10 Worst Booming Stocks to Buy According to Short Sellers. In this article, we are going to take a look at where Super Micro Computer, Inc. (NASDAQ:SMCI) stands against other worst booming stocks to buy according to short sellers.
Are We Really In September?
September has historically been one of the worst months for US stocks. Considering this and the performance of big tech, particularly AI stocks, in the first week of the month, many investors have been shocked by the performance of the S&P 500 and the Nasdaq Composite Index in the second week of September. Both indices showcased their best performance this year during this week, and both were up for five days in a row. So, it’s not surprising that many investors are confused about what this means and how this even came about in the first place.
According to Tom Lee, Co-founder and Managing Partner at Fundstrat Global Advisors, this is the type of performance investors can expect to see over the next eight weeks up to Election Day – and perhaps even for a couple of weeks after that. With the much-awaited Fed meeting also coming up next week, Lee expects more support especially since we already have enough reason to believe that the Fed is going to make some cuts. According to Lee, with the inflation data coming in better than before and with the labor markets needing more support, the Fed’s actions will give the markets more confidence. This will translate into stocks trading well in the upcoming weeks.
Expected Future Trends
Lee noted that, at least for the next 12 months, investors should be more confident about the markets and their performance. The potential rate cut is not the only reason for this. Another positive factor is the upcoming election – according to Lee, historically, the markets have always performed well in the months coming after an election. This past trend is making the November-December period also look good for stocks in the US. Lee also commented that the policies of both Presidential candidates are good enough for the markets to do well in 2025 as well. So, even if investors see a little more turbulence, the long-term expectations for the market seem largely positive.
In terms of what stocks investors should be looking at in this new environment, Lee noted that the general rule for any investor should be to buy the best companies in any area first. These would be the companies that are able to beat any type of cycle and promise high returns to their shareholders, basically blue chip stocks. At the same time, Lee expects that when the Fed moves rates back toward neutral, cyclical and small-cap stocks will also benefit immensely from the tailwinds created by this move. Because of this, Lee expects small-caps to do really well in the next 12 months.
These insights have highlighted that the markets are now on an upward growth trajectory, and we’ve been seeing a lot of stocks generate immense returns because of this. However, many such booming stocks are being relentlessly shorted, which may brew confusion among investors about which companies to buy now. We’ve thus compiled a list of some booming stocks that short sellers consider to be the worst players in the market and explained whether you should consider buying them or not.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
A team of technicians in a server room, testing and managing the newest server solutions.
Super Micro Computer, Inc. (NASDAQ:SMCI)
Year-to-Date Performance as of September 14: 60.2%
Short % of Shares Outstanding as of September 14: 14.9%
Number of Hedge Fund Holders: 47
Super Micro Computer, Inc. (NASDAQ:SMCI) is a technology hardware, storage, and peripherals company based in San Jose, California. It offers high-performance server and storage solutions based on modular and open architecture.
Super Micro Computer, Inc. (NASDAQ:SMCI) has also been hit by the rising negative opinion surrounding AI stocks this September, and this has only been exacerbated by a short-seller report from Hindenburg Research, which resulted in the stock falling even further than before.
The biggest red flag for investors following Super Micro Computer, Inc. (NASDAQ:SMCI) right now is that its revenue seems too dependent on AI. In the fiscal year that ended in June, the company brought in revenue of $15 billion, which is over double the amount it brought in a year ago. This may be a cause to celebrate for some, but a closer look at the company’s historical performance shows that before the AI boom, Super Micro Computer, Inc. (NASDAQ:SMCI) was seeing no revenue growth.
Considering this, investors are concerned that if we are in an AI hype cycle, stocks like Super Micro Computer, Inc. (NASDAQ:SMCI), which are heavily dependent on AI spending for their revenues, may be the first to fall if the AI hype goes down. This might also explain short sellers’ approach to this stock at present, in addition to the accounting discrepancies that are making headlines.
In total, 47 hedge funds were long Super Micro Computer, Inc. (NASDAQ:SMCI) in the second quarter, with a total stake value of $1.5 billion.
Scout Investments, Inc mentioned Super Micro Computer, Inc. (NASDAQ:SMCI) in its second-quarter 2024 investor letter:
“Super Micro Computer, Inc. (NASDAQ:SMCI) was the top detractor to returns in the second quarter. Super Micro designs and manufacturers server solutions based on modular and open-standard architecture. This modular approach combined with a strong engineering culture helps the company to supply the market with advanced servers and rack-scale compute solutions quickly. After an impressive return in the first quarter, the company offered disappointing near-term earnings guidance, though we do not believe its long-term opportunity has diminished. We expect continued strong growth for several years, although the range of outcomes is quite wide; it is difficult to forecast AI server market growth with precision.”
Overall, SMCI ranks 2nd on our list of 10 worst booming stocks to buy according to short sellers. While we acknowledge the potential of SMCI as an investment, we believe that AI stocks hold promise for delivering high returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than SMCI but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.