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

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

Please note that the author does not provide investment advice and does not hold any positions in the stocks mentioned.

Despite Super Micro Computer (SMCI) shares reaching unprecedented heights alongside NVIDIA’s rapid growth, the company has been actively increasing its cash reserves. This aggressive approach has also been reflected in the actions of corporate insiders, who have sold almost 20 times more shares than they have purchased in the last three months. However, SMCI may have pushed its luck today with the announcement of a new equity offering.

Undoubtedly, there is a valid explanation for Super Micro Computer’s continued partnership with NVIDIA. This is evident by the fact that NVIDIA remains the company’s largest client, followed by another entity with strong ties to NVIDIA. Yet, the stock’s significant increase of over 300 percent this year, as of yesterday’s closing price, has raised apprehension among astute investors due to its inflated valuation.

Super Micro Computer took a bold move today by revealing plans for a new equity offering of 2 million shares. The company, known for its production of servers, had high hopes for NVIDIA’s AI-centric event from the previous day to reignite the market’s enthusiasm. Unfortunately, this strategy appears to have backfired as SMCI shares have dropped by more than 10 percent at the time of writing.

NVIDIA GTC 2024 Fails to Meet Expectations, Leading to Disappointing “Sell-the-News”Reaction

As mentioned in a previous post yesterday, NVIDIA unveiled a series of significant announcements on the same day.

  1. A recently developed AI and Tensor Core GPU architecture has been named Blackwell.
  2. The GB200 Grace Blackwell Superchip is comprised of one Arms-based Grace CPU and two Blackwell B100 GPUs. It has the capability to utilize an AI model with 27 trillion parameters, surpassing OpenAI’s GPT-4 which only has 1.7 trillion parameters. According to a tweet from Thudderwicks, the chip is anticipated to be 30 times more efficient in tasks such as providing responses from chatbots.
  3. The GB200 NVLink 2, a newly developed server, integrates 72 Blackwell GPUs with additional NVIDIA components specifically designed for AI model training.
  4. The enterprise software subscription offered by NVIDIA includes the NVIDIA Inference Microservice (NIM), which allows subscribers to utilize older GPUs for AI inference. This process involves trained AI models using new data to draw conclusions.
  5. A project named GROOT, focused on creating a humanoid robot, has recently been launched.

Goldman Sachs has increased its price target for NVIDIA shares to $1,000, showing that Wall Street has been welcoming to the company’s recent announcements, as seen in a tweet from Wall Street Engine.

However, the lack of any major unexpected developments has opened the door for a “sell the news”trend in NVIDIA and related stocks, such as Super Micro Computer.

The absence of continued buying has resulted in a decrease in the call skew within the semiconductor industry, leading to a modest decline in the market today.

Super Micro Computer Inc. Stock Enters Bear Market Territory

Super Micro Computer NVIDIA
Super Micro Computer Stock Price

In the last five trading days, there has been a decrease of more than 20 percent in the value of Super Micro Computer shares, officially marking the start of a bear market.

Despite the backdrop appearing to be ripe for an aggressive pullback, the stock has dropped by over 10 percent today. This is likely due to investors’ apprehension towards Super Micro Computer’s recent share offering, which raised approximately $1.5 billion through the issuance of convertible notes in February.

Despite Super Micro Computer’s recent impressive performance, the stock was only just added to the S&P 500 index yesterday. However, as we mentioned in a previous post, companies that are added to the S&P 500 index tend to underperform. AIV, which was replaced by Tesla in the benchmark index in 2020, actually outperformed the EV giant’s stock market gains by 78 percent over the following 6 months.

It appears that there is a modest valuation reset on the horizon for semiconductor stocks, such as NVIDIA and Super Micro Computer.

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