Super Micro Computer fell 18%. Will it go up after the stock split?

At the beginning of this year, Super Micro Computer (NASDAQ: SMCI) has proven to be one of the powerhouses of today’s economy. Thanks to customer demand for artificial intelligence (AI) in its equipment, the company saw triple-digit revenue growth. Stock performance followed, with the stock posting a 188% gain in the first half of the year, even outpacing the bull market’s gain Nvidia. And Supermicro received invitations to join S&P 500 and the Nasdaq 100another sign of its earnings strength and market leadership.

All of this sounds fantastic, but in recent weeks Supermicro has faced some headwinds that have translated into declines in its share price. Shares have lost about 18% since a brief report in late August that alleged problems at the company. In addition, investors worried because Supermicro delayed its annual 10-K report.

Now moving on, Supermicro has a big event just around the corner. The company will complete a 10-for-1 stock split at the end of the month, and shares will begin trading at the new split-adjusted price on October 1. Will this once-high-flying stock rebound from its recent woes and rise after the stock split? Let’s find out.

What’s next for Supermicro

First, let’s talk about Supermicro’s path so far and what the future might hold. The company is not a new manufacturer of workstations, servers and other equipment. Supermicro has actually been around for more than 30 years, but growth has only recently begun as the AI ​​boom has accelerated. AI customers have turned to Supermicro for equipment as they build and expand their data centers.

And Supermicro was ready to serve them – and with all the latest technologies in the AI ​​chip market, as this technological powerhouse works hand in hand with the biggest chip designers. So when Nvidia, for example, releases a new chip, it’s immediately available in Supermicro equipment. This has helped Supermicro grow five times faster than the industry average over the past year.

It also helped Supermicro’s earnings pick up. In its most recent quarter, revenue grew more than 140% and profit grew by double digits. And this may just be the beginning, as Supermicro prepares to tackle a new growing market: cooling solutions to address the heat problem in AI data centers. Supermicro estimates that up to 30 percent of new data centers will opt for direct liquid cooling in the next 12 months and says it will dominate this market.

At the same time, Supermicro is preparing to open its Malaysian facility, one that will help it achieve volume gains and lower costs in the coming years.

The story continues

Regarding Supermicro’s short report and delayed annual report, I don’t see these issues as changing the bright long-term story: Supermicro called the statements in the short report “false or inaccurate,” and regarding its annual report, say no I don’t expect any significant change in earnings.

Supermicro stock split

Now let’s consider the upcoming stock split. These operations lower the price of each individual share, making the shares more accessible to a wider range of investors. But the split doesn’t change anything fundamental about a company — so the company’s valuation and market value remain the same, for example.

This means that a stock split, by itself, is not a reason to buy a stock — so the stock probably won’t go up when it opens at the split-adjusted price. However, a split is generally a positive move for a company because, as mentioned, it makes it easier for more people to buy a particular stock. In that case, considering Supermicro’s current price and split ratio, you’ll be able to pick up a share for around $45 instead of more than $450. Gradually, that could draw more investors to the stock — but only if they like the company’s earnings history and long-term outlook.

Now, back to our question. Will the stock go up after the split? I wouldn’t expect this to happen overnight, as stock splits themselves don’t act as catalysts for performance. But given the strength of Supermicro’s earnings so far and its potential to dominate the DLC market, this top AI player has plenty of room to run in the long run.

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Adria Cimino has no position in any of the actions mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.

Super Micro Computer fell 18%. Will it go up after the stock split? was originally published by The Motley Fool