I just bought the Dip on the Super Micro computer stock

Super Micro Computer (SMCI 4.59%) investors have been on a roller coaster ride in 2024. The stock entered the year at $280, then quickly peaked at nearly $1,200 in March. Since then, it’s been an almost straight decline, and the stock currently sits around $440.

There are some good reasons why Supermicro has fallen from its stock price of over $1,000 earlier this year, but I also think its current price is an absolute steal, which is why I just bought the stock dip.

Supermicro hasn’t had much positive news lately

Super Micro Computer builds computing server components as well as complete server solutions. Its claim to fame in this world is that it offers highly customizable servers that can be tailored for any size or type of workload. In addition, its liquid-cooled technology, along with other innovations, make its servers the most efficient in the world. This is essential because the energy input costs in these servers are incredibly high.

With massive demand for data center parts and servers, Supermicro’s business has grown, following a similar growth trajectory as Nvidia. That sent the stock soaring earlier this year, but the company hit two major roadblocks along the way.

First, Supermicro’s gross margin declined in 2024, continuing a trend that began in 2023.

SMCI gross profit margin data (quarterly) by YCharts

This is a problem because a declining gross margin can signal price competition, indicating that Supermicro has no real competitive advantages. However, management points to the upfront costs of bringing its liquid cooling technology to life. Its gross margin is expected to improve as components become more readily available through fiscal 2025 (ended June 2025).

This should also improve bottom line profitability and is a key trend to watch over the coming year.

The second cause of Supermciro’s decline was the short report of Hindenburg Research. The Hindenburg is a notorious short seller, meaning it profits as the stock dwindles. He has been known to issue reports on various companies explaining why he believes the stock is misvalued. In Supermicro’s case, it cites accounting malpractice as one of the main concerns. Supermicro also did itself no favors in defeating these allegations by delaying its year-end 10K filing with the Securities and Exchange Commission (SEC).

The Hindenburg ratio doesn’t concern me as much as the shrinking margins, as if there are any problems, they’re probably only a very small part of Supermicro’s business.

In terms of margins, the market is valuing the stock as never going back to normal, which is a huge investment opportunity.

The bar is pretty low for Supermicro stock to succeed

Fiscal 2025 is expected to be another monster year of growth for Supermicro, with revenue expected to grow between 74% and 101% year over year. In addition, Supermicro’s CEO raised his long-term outlook to $50 billion in annual revenue for the company. There is a massive opportunity here, and Supermicro will be one of the main beneficiaries.

According to Wall Street estimates, Supermicro is expected to grow earnings by 69% in fiscal 2025.

Data on the SMCI PE report by YCharts

However, if Supermicro achieves its revenue growth targets, its revenue growth will exceed revenue growth projections. That doesn’t make much sense, especially if margins improve over the course of the year as management forecasts.

This is a key reason I invest in Supermicro: the stock’s core case is easy to make. If Supermicro knocks it out of the park, grows revenue to the high end of expectations and improves margins, the stock will likely be a home run.

With the general trends towards cloud computing and artificial intelligence (AI), Supermicro’s business is not slowing down anytime soon. As a result, I use the weakness to start a position because it could be a huge winner over the next few years.