After reporting earnings last week, investors in Super Micro Computer (NASDAQ:SMCI) certainly appear to be questioning the company’s gross margins and what this could mean for the company long-term. Indeed, SMCI stock remains well off its pre-report levels, still trading roughly 12% below pre-report levels.
That said, SMCI stock is making a comeback today, with Super Micro investors appearing to digest recent commentary around demand for the company’s direct liquid cooling technology. Shares of the server and storage company are up about 6% in this afternoon’s session as investors question whether this recent selloff in this artificial intelligence (AI) related stock was warranted altogether.
Let’s dive into what investors may be thinking about today, and why this stock is moving so aggressively higher this afternoon.
SMCI Stock Surges Following Sharp Selloff
The recent selloff in SMCI stock has been remarkable. The stock traded above $1,200 per share earlier this year, with many investors calling for a potential stock split at the time. This past week, Super Micro saw its share price slashed to less than $500 per share, though a rally over the past few trading sessions has this stock now trading around the $550 level at the time of writing.
It does appear that investors are increasingly considering the rapid adoption of direct liquid cooling technology for server racks. In particular, the impressive market share gains this technology has garnered over traditional data center operating models is impressive. As of last year, data centers that employed liquid-cooling technology accounted for around 1% of the market. That’s in large part due to how expensive this technology is. However, with rising energy prices and the expertise and scale Super Micro has found, the company has been able to grow its share to around 15% of the overall market.
Super Micro Computer’s Niche
This is the key bull thesis behind why many investors piled into Super Micro during the recent AI frenzy. This market share growth is impressive and does signal that other companies looking to create AI-first data centers may be looking to spend right now to ensure lower operating costs in the future. That’s the promise Super Micro’s technology provides.
We’ll have to see if today’s impressive rally can continue. However, at less than 15 times forward earnings, SMCI stock looks cheap if this growth can continue.
On the date of publication, Chris MacDonald did not have (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.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
