Having hit fresh all-time highs at the start of August as part of a broader 280% rally, shares of Super Micro Computer Inc (NASDAQ: SMCI) were brought rudely back to earth after they reported earnings. Despite topping analyst expectations for both headline figures and showing year-on-year revenue growth of 33% while they were at it, Wall Street was left feeling that the results were good but not great.
And certainly not great enough to justify the triple-digit percentage rally that had had investors popping bottles all summer.
For stocks with favorable exposure to the AI industry, such as Super Micro Computer with its customized infrastructure solutions beloved of semiconductor companies, it’s imperative that they continuously deliver robust earnings reports to justify all the hype. Missing estimates, or even managing to beat them, but only by a little, can be catastrophic.
Such was the case earlier this month, where a post-earnings slide shaved 35% off the share price. It didn’t help that management offered softer-than-expected forward guidance, which understandably spooked investors who had been buying in for the long-term growth potential.
But it looks like a low has already been put in, and with NVIDIA Corp (NASDAQ: NVDA) delivering a knockout report last night, the hype around AI has been given fresh legs. Here are three of the strongest tailwinds we see sending Super Micro Computer back to all-time highs.
Bullish Comments
Whenever analysts come out with bullish comments or upgrades on a stock, Wall Street listens. These updates can give some investors the final nudge they need to get involved, and they can highlight a previously unheard-of stock to a whole range of others. Either way, it almost always results in volume being driven onto the bid and the price being sent higher.
Yesterday morning saw a fresh upgrade to Super Micro Computer from the team at Wedbush, who noted that the near-term downside was becoming increasingly limited. Analyst Matt Bryson was happy enough to brush aside any lingering concerns from the company’s cautious forward guidance and instead focus on the long-term growth potential.
Some headwinds remain in the form of supply chain restrictions, but he sees these as being industry-wide and not specific to Super Micro Computer.
As a result of Bryson’s comments, shares jumped 7% on the day. Wall Street is clearly buying into the narrative that the post-earnings slump was unwarranted and that the worst-case scenario will not happen.
Bears Throwing In The Towel
Another reason to be optimistic about Super Micro Computer getting back to highs is the white flag being waved by the bears. They owned the stock for the week after earnings, but they’ve very clearly run out of steam since.
Just when it looked like they would start testing support around the $215 mark, a whole swath of buyers stepped in to stop the stock from falling below $235 on Monday of last week. Since then, shares have closed higher every single day.
This will be a cause of concern for any bears still shorting the stock, as they’ll be forced to buy back shares to close their position. In doing so, they only add further volume to the bid, which fuels further gains. Super Micro Computer isn’t quite in short-squeeze territory, but with nearly 10% of their float sold short, that’s a lot of trades that will need to be reversed if the stock keeps climbing.
As we’ll see below, shares are due to a gap up of nearly 10% at today’s open. This will mean they’ll have fully undone more than 50% of the drop from earlier this month. If you shorted the stock on the back of the soft guidance, you’re going to be getting nervous.
NVIDIA Fuelled Hype
As arguably the leading stock out there when it comes to being a bellwether for the AI boom, where NVIDIA goes, so too does the rest of the market. The semiconductor giant reported knockout earnings last night, and their shares are due to open at all-time highs today. This upside surprise and related optimism is quickly filtering out to related stocks, Super Micro Computer included. Their shares are trading up in Thursday’s pre-market session and look set to gap up on the open.
This could well be the final nail in the coffin of the bears’ argument while also restarting a fresh rally for the bulls. If the last rally was interrupted by growth concerns specific to Super Micro Computer as well as broader industry concerns about the AI boom becoming a bit frothy, then Wedbush’s comments have taken care of the former, while NVIDIA’s report will put paid to the latter.
Super Micro Computer’s current rally only really got going after NVIDIA released that now famous report in May, the one that started the whole AI hype. Last night’s report looks like it might be simply the start of the next chapter, one that is just as likely to send Super Micro Computer shares back to fresh all-time highs.
