Why Super Micro's stock is tanking - and about to snap a nine-day win streak

By Emily Bary

Wells Fargo begins coverage on the sidelines, saying that AI-driven earnings potential is already baked into stock price

Super Micro Computer Inc.'s monster rally was stalling Friday, as its stock headed for a dramatic drop that would snap its longest winning streak in over seven years.

Shares of the server maker had run up nearly 200% in a month, through Thursday's close, and had catapulted some 900% on a 12-month basis as well. Wall Street seems excited about Super Micro's (SMCI) potential to capitalize on the artificial-intelligence frenzy, but Wells Fargo's Aaron Rakers suggested that this enthusiasm may already be baked into the stock price.

Super Micro's stock was sliding about 17% in afternoon action and on pace to break a nine-session winning streak. That streak was its longest since another nine-session run of gains that ended Aug. 1, 2016, according to Dow Jones Market Data.

The stock was also on track to see its largest one-day percentage drop since it fell 23.4% on Aug. 9, 2023.

Wells Fargo's Rakers initiated coverage of Super Micro shares with an equal-weight rating and $960 target price Friday, writing that the stock was already discounting a pathway to upwards of $40 a share in earnings by 2025.

See also: Super Micro's stock has surged 900% in a year. Why BofA is making a 'buy' call.

Rakers cheered the stock's "AI-fueled fundamental momentum," which "has been nothing less than remarkable," in his view. He attributed the company's traction in part to its "engineering-first differentiation," as the company historically has allocated 40% to 50% of its headcount to research and development roles.

Super Micro's "engineering-first culture appears sustainable, as we see silicon diversity and overall data-center complexity as poised to only increase looking forward," he wrote.

The company's liquid-cooling offerings are proving more critcial given the heavier power requirements for AI workloads. The company's "integration of liquid cooling with its own power supply development is a competitive advantage," Rakers said.

"While liquid cooling deployments today are a very small contribution, [Super Micro] has noted that it sees about 205 of data center customers expressing interesting in the evolution/need for liquid cooling deployments," he wrote, and the company could see a 10% to 20% boost to average selling prices for liquid-cooled versus air-cooled systems.

Opinion: Why Super Micro is mopping up the floor with the competition

-Emily Bary

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02-16-24 1402ET

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