Super Micro Computer Stock Climbs After Its Post-Earnings Swoon

Super Micro Computer (SMCI) shares jumped more than 6% on Monday, recovering a portion of the steep losses recorded last week after the server and data storage company released its fiscal fourth-quarter earnings.

In its latest set of quarterly figures, released after the closing bell Tuesday, the server maker reported revenue had more than doubled from the prior year, edging out analysts’ sales forecasts. Profits, however, fell short of expectations, and Supermicro’s stock plunged 20% the next day.

Supermicro Sees Path to Margin Recovery

Although Supermicro forecasted further sales growth, increasing costs contributed to a drop in margins that appeared to underpin the negative reaction to the earnings report. Bank of America analysts downgraded the stock to “neutral,” saying they expect margins to remain subdued in coming quarters.

On its earnings call, Supermicro attributed the downtick in gross margins to product mix, competitive pricing aimed at securing new design wins, and elevated initial costs involved in increasing production of direct liquid cooled (DLC) technology for clusters of graphic processing units used in artificial intelligence (AI) data centers.

As DLC production ramps up, the company believes it can slow manufacturing costs to drive margin recovery.

Liquid Cooling Technology Set for Growth

In addition to the company’s assertion that preliminary cost headwinds should be temporary, a report over the weekend in The Wall Street Journal suggested that Supermicro’s investments in liquid cooling technology could pay off. The article highlighted liquid cooling as a “novel method” for helping AI data centers without relying as heavily on energy-intensive air conditioners.

Supermicro delivered more than 1,000 liquid-cooled AI racks in June and July, according to the report, and around 30% of the server racks the company ships next year will incorporate liquid cooling.

Stock Performance

Following last week’s losses and Monday’s recovery, Supermicro shares have gained nearly 90% so far in 2024.