Computer assembly giant Super Micro Computer (NASDAQ:SMCI) will split its stock on a 10-for-1 basis. But the timing of the announcement is not auspicious.
CEO Charles Liang insisted during an Aug. 6 conference call that the company “continues to experience record demand” for its artificial intelligence (AI) infrastructure racks. “We are well positioned to become the largest IT infrastructure company,” he said, based on its liquid cooling technology.
SMCI stock is down more than 12% this morning, trading hands at around $534 per share. The market capitalization is sitting at about $31 billion.
A Bad Split?
Super Micro will execute the split on Oct. 1. An investor who owns 100 shares as of Sept. 30 will then hold 1,000 shares post-split.
The company’s failure to meet earnings estimates for the period was due to margins falling to 11.2% from 17% a year ago. The company’s main business is assembling Nvidia (NASDAQ:NVDA) chips into racks for data centers and shipping them to cloud customers.
Nvidia stock is down 12% since it split its own shares in June. Investors are worried that AI applications aren’t living up to their hype, meaning hardware demand will fall.
The truth is more nuanced. Enterprise vendors like ServiceNow (NASDAQ:NOW) are seeing huge demand for their AI offerings. General purpose AIs like Microsoft’s (NASDAQ:MSFT) Copilot and Alphabet’s (NASDAQ:GOOG, NASDAQ:GOOGL) Gemini are getting some scathing reviews.
Since the cloud giants are the biggest buyers of Nvidia hardware and Super Micro’s services, investors are cutting their premiums on NVDA shares. Liang isn’t hearing it. Expansion of Super Micro’s facilities in Malaysia and Silicon Valley is underway.
What Happens Next?
Super Micro is less a technology innovator than a technology implementer. It depends on rising demand for Nvidia systems for its growth. If Nvidia sneezes, SMCI will catch a cold. If the cloud giants cut back on their orders, SMCI stock could be in real trouble — split or no split.
On the date of publication, Dana Blankenhorn held a LONG position in MSFT and NOW. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
