After enjoying the biggest gains of any artificial intelligence stock in 2024, Super Micro Computer (NASDAQ:SMCI) came crashing down the other day. The AI tech leader lost almost a quarter of its value in just one day. Although shares rallied a little recently, the stock remains 28% below its all-time high, hit last month.
Other AI names tumbled too, including Nvidia (NASDAQ:NVDA) and Advanced Micro Devices (NASDAQ:AMD). Having come so far, so fast, the market is spooked that anything out of the ordinary means it is the beginning of the end.
But does Super Micro stock’s failure to give preliminary results when announcing its earnings date warrant the dramatic decline? Are investors right to be concerned the AI music is about to stop?
A Closer Look at SMCI Stock
The rapid drop in valuation all across the sector shows the market knows these stocks have gotten well ahead of themselves. They still carry lofty valuations. SMCI stock trades at 60 times trailing earnings and 25 times next year’s estimates. Nvidia goes for 70x and 27x, respectively.
It has been like a game of musical chairs. Investors were willing to play, hoping they would be the ones to get out first before the music stopped. This could be the first sign it’s happening.
Despite AI stocks all bouncing higher the next trading day as tech sector earnings indicate maybe the bottom isn’t dropping out, the market remains wary.
A lot will hinge on Super Micro’s earnings report, which is scheduled for next Tuesday, April 30. Advanced Micro Devices will report the same day as will Amazon (NASDAQ:AMZN) (Nvidia won’t report until later in May).
Super Micro, of course, builds servers, networks, storage solutions, workstations and more for data centers that are optimized for AI using Nvidia’s chips. Fiscal second-quarter sales doubled from last year to $3.7 billion while profits rose 62% to $296 million. The tech leader has been growing sales at more the 50% for the past few years. There’s no reason to think that is coming to an end in the fiscal third quarter.
Plenty More Where That Came From
Investors should look at this opportunistically. Even if SMCI’s earnings disappoint and the stock tumbles, investors shouldn’t panic. All else being equal, it would make an excellent time to buy up shares.
AI isn’t going away. Unlike other supposed game-changing tech advances such as the metaverse, AI has actual, real-world applications businesses can use . It will only get better and represents a huge growth market that will make investors rich.
Analysts like to draw straight lines that grow exponentially. AI is no different. It’s forecast the technology will expand from a $300 billion industry last year to $1.8 trillion or more by 2030. That’s a sixfold expansion in market size. Even if Wall Street is wrong by half, it still means massive growth.
Prepare to Pounce
The building blocks of that trajectory are being built by the likes of Super Micro Computer and Nvidia. While their valuations may ebb and flow at various points as the market gets overheated by enthusiasm (much like we recently witnessed), they will move higher over the long haul.
That’s why investors should be excited by the sharp drop in prices. It wouldn’t be wrong for them to want them to drop even more after SMCI stock’s earnings. A decline doesn’t mean Super Micro Computer’s business is broken. It just provides a better entry point for investors who have the proper long-term perspective.
On the date of publication, Rich Duprey did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
