Is this artificial intelligence (AI) stock a bargain after recent volatility?

Let me say this Super Micro Computer (SMCI 0.69%) has been through a lot of volatility recently is an understatement. It entered the year at about $280 a share before exploding higher to nearly $1,200 by early March. Now, it’s down to about $410 per share. Depending on when you purchased the stock, you’re either still happy or extremely disappointed.

But has all this recent volatility opened up a buying opportunity? Or are there huge red flags?

The basic operation of the Super Micro Computer is excellent

The Super Micro Computer (often called Supermicro) investment thesis was quite simple: there is a huge demand for NvidiaIts data center GPUs, so there will be huge demand for Supermicro’s products. Supermicro makes various components that go into large computing servers and the servers themselves.

While this space is more crowded than the GPU space that Nvidia dominates, Supermicro sets itself apart by offering highly customizable servers and the most energy-efficient offerings on the market. Energy efficiency is essential because the operating expenses for these massive computing units are quite high.

This thesis has played out perfectly in recent quarters as Supermicro’s revenue growth has been remarkable.

SMCI Revenue (TTM) data by YCharts

It also projected strong growth for fiscal 2025 (ending June 30, 2025), with revenue expected to grow between 74% and 101% year-over-year, indicating total revenues between $26 billion and $30 billion dollars.

This would have been a well-received figure in a vacuum, and investors would have cheered it.

But there were two problems.

Can you trust Supermicro’s finances?

These numbers are only good if you can trust them. Supermicro has been fined by the Securities and Exchange Commission (SEC) for past accounting violations, but those practices could return, according to renowned short seller Hindenburg Research. To make matters worse, Supermicro delayed filing its year-end Form 10-K because it was evaluating the effectiveness of its internal controls.

While Supermicro’s CEO released a statement denying Hindenburg’s allegation, the damage has already been done to the stock, as it’s down about 25% since the report came out.

Another factor in Supermciro’s downfall is its declining gross margin. Management points to the ramp-up of its new liquid-cooled technology as a source of the decline, but it will take most of fiscal 2025 for that to return to normal.

This margin squeeze could really hurt Supermicro’s profits, as they may not recover over the course of the year.

SMCI gross profit margin data (quarterly) by YCharts

A declining gross margin may also come from increased competition, causing Supermicro to lower its prices. Investors won’t know for sure for a while, but this is a trend to watch.

Neither of these two factors excite investors, but the massive selloff they triggered may have pushed the stock to a point where some are willing to buy.

The stock looks incredibly cheap after the sale

Despite the declining impairment profile, Supermicro shares trade for just 12.3 times forward earnings.

SMCI PE Ratio data (before) by YCharts

That’s incredibly cheap for a company that’s expected to grow sales substantially over the next year. It’s also a business in general, so buying shares here may not be a bad idea.

However, there are many unknowns about Supermicro that will come into focus over the next year. Although I haven’t bought the stock yet, I’m thinking about it. But if I buy it, it will only be a small percentage of my portfolio because this investment could go bad. If it works, then that small percentage will still have a big effect on my portfolio.