Despite Super Micro’s 200% revenue growth, investors unimpressed as stock falls

Shares of Super Micro Computer Inc. plummeted more than 10% in extended trading today after the firm reported mixed financial results, exceeding Wall Street’s profitability estimates but falling short on revenue.

However, the after-hours dip could have been due to investors collecting profits rather than any long-term concerns about the company’s future.

The company announced third-quarter earnings before certain charges such as stock compensation of $6.65 per share, exceeding its own expected range of $5.20 to $6.01 and far ahead of analysts’ consensus expectation of $5.80. However, the company’s sales did not meet projections. It generated sales of $3.85 billion, up an incredible 200% from the previous quarter, but fell short of Wall Street’s expectation of $3.99 billion.

Super Micro’s stock has been one of the best-performing in the technology business recently, rising by more than 700% in the last year. That massive gain reflects the company’s status as a pure-play AI server manufacturer, as it is one of only a few companies capable of building bespoke servers powered by Nvidia Corp.’s graphics processing units for AI workloads.

Despite Super Micro's 200% revenue growth, investors unimpressed as stock falls

Its main competitors include Dell Technologies Inc., Hewlett Packard Enterprise Co., and Lenovo Group Ltd., all of whom have profited from the AI trend. However, Super Micro’s stock has witnessed the most significant gains as a result of its laser focus on servers.

Super Micro’s stock skyrocketed, replacing Whirlpool Corp. in the S&P 500 Index last month, and the business expects it will continue to grow in the future. “We are rapidly expanding our customer base,” Chief Executive Charles Liang (above) stated during a conference call with analysts.

According to Liang, Super Micro would have sold more servers if it had not experienced a crucial component shortage during the quarter. He said that AI will fuel additional growth for the company for “many quarters, if not years to come.” The CEO explained that Super Micro’s extraordinary success pushed the company to seek additional cash through a secondary stock offering earlier this year.

Despite the strong gain over the last year, the company’s stock has been sputtering over the last week due to concerns raised when executives neglected to give a favorable pre-earnings announcement, as they had done in seven of the previous eight quarters. The corporation also declined to explain why this was the case, fueling speculation that its financial reports may disappoint.

The findings were mixed, but there are plenty of reasons to be optimistic about Super Micro’s future possibilities. Last week, both Microsoft Corp. and Alphabet Inc., the parent company of Google LLC, reported higher-than-expected cloud growth driven by AI demand. Furthermore, they both indicated plans to increase AI infrastructure spending, which is a positive indication for Super Micro, as they are among its largest customers.

That could explain why Super Micro is so hopeful for the current quarter. In its fourth-quarter outlook, the company expects sales of $5.1 billion to $5.5 billion, with earnings of $7.62 to $8.42 per share. Both of these predictions are much ahead of Wall Street’s expectations, with analysts forecasting sales of only $4.9 billion and profits of $7.18 per share.

According to Holger Mueller of Constellation Research Inc., it is easy to forget that the great generative AI gold rush benefits infrastructure suppliers as well as AI model makers.

“Super Micro is doing really well, basically doubling all of its key performance indicators, from revenue to profit to earnings per share,” according to the research firm. “But today’s investor reaction is a stark reminder that even in the midst of a boom, you must adhere to direction. Charles Liang and his staff will want to improve on it in the coming quarter, just like the company’s stockholders.”

Super Micro also boosted their fiscal year 2024 projection. It now expects total revenue to range between $14.7 billion and $15.1 billion, with earnings of $23.29 to $24.09 per share. Previously, it projected revenue of $14.3 billion to $14.7 billion and lower earnings per share.

Wall Street expects full-year revenue of $14.6 billion and earnings of $21.95 per share.

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