Stock Market

Super Micro Computer (NASDAQ:SMCI) stock is a compelling growth prospect for those optimistic about computing and AI advancements. Despite a pullback, its impressive earnings report signals robust growth. 

SMCI stock is currently trading at around $850, significantly lower than its peak of over $1,200 per share. Collaborating with chip manufacturers like Nvidia (NASDAQ:NVDA) can lead to growth. However, this is a stock with some serious value-based concerns that are rightly placed. Here’s my take on whether Super Micro is a buy right now.

Nvidia Blackwell AI Server Orders for SMCI

Supermicro Computer may be viewed in some ways as an AI computing underdog. However, after its run earlier this year, it’s clear investors are picking up on the upside this stock has relative to the AI tailwinds we’re seeing.

Super Micro has received substantial orders for server racks using NVIDIA’s Blackwell AI GPUs. The firm gained attention during the AI hype, with its stock rising 182% year-over-year as the company established key relations with Nvidia.

Specializing in high-performance systems for AI, SMCI experienced a significant surge in orders in recent quarters.

Super Micro is expanding its business with Nvidia’s advanced Blackwell AI GPU architecture. The firm received a significant order for Blackwell AI server racks, and is set to ship 10,000 units, accounting for 25% of Nvidia’s supply. 

Key systems included in this sale are the Nvidia HGX B100 and B200 8-GPU systems, 5U/4U PCIe GPU systems with up to 10 GPUs, SuperBlade with up to 20 B100 GPUs, 2U Hyper with up to three B100 GPUs, and 2U x86 MGX systems with up to four B100 GPUs.

The Problem with SMCI

Excessive debt can lead to lenders taking control or forcing the company to issue shares at low prices, diluting shareholders. Therefore, evaluating a company’s debt alongside its cash holdings is crucial.

Super Micro’s debt increased to $1.86 billion from $187.2 million last year. However, the company holds $2.12 billion in cash, reflecting a net cash position of $252 million. 

Super Micro Computer’s balance indicates a strong financial position and ability to manage debt.

SMCI Stock One Worth Watching

SMCI expanded partnerships beyond Nvidia Corp to include other chip producers. These collaborations aim to increase companies’ product pipelines and volume potential.

Super Micro’s rack allocation includes 40% that are focused on liquid cooling. Targeting 5,000 racks monthly by June 2024, SMCI aims for 2,000 liquid-cooled racks to position itself as a leader in the field.

Considering future capital raises, SMCI weighs unsecured debt amid high demand for AI servers and prolonged lead times for critical components like GPUs.

Previously reliant on equity and convertible bonds for inventory pre-purchase, SMCI stock (now part of the S&P 500) sees unsecured debt as feasible, given its investment-grade profile. Investors should track SMCI’s expansion and AI sector advancements closely.

It’s my view that SMCI stock is one that clearly has some strong growth potential, but is also one that’s pricey. Investors looking to take a long-term position in this name should pick their spots wisely. I’m not so sure this recent dip is enough to justify a buy call just yet.

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.

Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.

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