June 6, 2023


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Short Squeeze or Top Stock to Buy? Super Micro Computer (NASDAQ:SMCI)

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Top Stock is Still SMCI

Up more than 56% since Seeking Alpha selected Super Micro Computer, Inc. (NASDAQ:SMCI) as its Alpha Pick on November 14th, 2022, the stock has taken the bulls by its horns.

Amid market volatility and aggressive fluctuations in the technology sector, SMCI has reigned superior, being added to the S&P Midcap 400 Index with continued bullish momentum and tremendous investment characteristics. But with its rise, short interest has increased to 12.21% (as of 5/3/23) because one man’s loss can be another man’s gain.

As the race for artificial intelligence (AI) sweeps industries and companies look to revolutionize their businesses, SMCI has been at the forefront. Developing high-performing server and storage solutions for AI and High-Performance Computer (HPC) workloads, SMCI continues to rally. A close relationship with semiconductor company NVIDIA Corporation (NVDA) is serving as a tailwind. The companies have partnered to develop an AI platform with new graphics processors that analysts and researchers have deemed “a central component to the current boom in AI.” The announcement of the efforts, coupled with strong Q4 guidance, sent SMCI’s stock price surging to new highs, confirmation of what I wrote in January:

SMCI has been focused on cost-cutting where possible while offering new products and service solutions that include plug-and-play Rack-Scale Total IT solutions and GPU-based systems. Both actions have resulted in year-over-year triple-digit percentage growth, and the company anticipates continued momentum throughout 2023.”

Super Micro Computer Stock Crushes Quant Ratings & Factor Grades

SMCI Stock Quant Ratings & Factor Grades

Super Micro Computer (SMCI) Stock Crushes Quant Ratings & Factor Grades (SA Premium)

Where many investors are bullish on this Strong Buy pick, the bears also have come out and play. But brace yourself if you’re short this “super” stock whose record revenue and excellent quant ratings and Factor Grades might cause you to get squeezed.

Don’t Sell Yourself Short

In the wake of the banking crisis that appears reminiscent of the 2008 Great Financial Crisis, short sellers are ready to pounce on the speculative investment strategy known as short selling. By taking on a higher risk to profit from a stock’s decline, the opportunity for upside can be great. But if you pick wrong, and the stock’s price rises rather than falls, an investor could experience significant losses. One of the vital components of short selling is a focus on weak collective investment characteristics like poor valuation, weak revenue, and earnings growth, dwindling profitability, declining EPS revisions, and bearish momentum – not the case with SMCI!

SMCI Has Excellent Factor Grades

SMCI Has Excellent Factor Grades

SMCI Has Excellent Factor Grades (SA Premium)

A look at SMCI’s factor grades above showcases strong collective fundamentals based on valuation, growth, profitability, momentum, and EPS revisions. This is why the stock is quant-rated a Strong Buy. And while some investors short stocks with strong metrics, they could experience a short squeeze, causing short sellers to scramble to cover their positions by buying shares. Although Super Micro’s current short interest is 12.21%, which is a fair amount of short interest, short interest tends to be a poor indicator of stock price predictability and price appreciation. Seeking Alpha’s algorithm is updated daily using the most recently available short-interest data from S&P Global. Consider all aspects of this Strong Buy stock, or you may get short-squeezed to death.

Super Micro Computer, Inc.

  • Market Capitalization: $5.51B

  • Quant Rating: Strong Buy

  • Quant Sector Ranking (as of 5/3/23): 18 out of 590

  • Quant Industry Ranking (as of 5/3/23): 3 out of 31

Offering meticulous designs for server and storage solutions, SMCI manufactures first-to-market optimized applications for businesses that help reduce costs and environmental impacts while delivering differentiated systems to meet customer demands. With strong semiconductor manufacturing relationships (one of my favorite tech industries), SMCI is focused on digital transformation while making transformations at the infrastructure level.

As a leader in the industry, we want to provide exactly the best for our customers to help them save money and [Total Cost Ownership] TCO. We also want to make sure we contribute to our environment, contribute to our only Mother Earth” – Charles Liang, Supermicro CEO & President.

Focused on machine learning, Ai, cloud computing, and IoT, SMCI generates most of its revenue in the U.S. (+60%). As reported by SA News yesterday,

The Charles Liang-led company expects net sales to fall within a range of $1.7B and $1.9B, above the $1.64B analysts’ are expecting. Quarterly earnings are forecast to be between $2.21 and $2.71 per share, excluding one-time items, well above the $1.76 per share Wall Street is anticipating. In addition, Super Micro Computer (SMCI) maintained its guidance for the full year, as it expects sales to fall within a range of $6.6B and $6.8B and earnings to be between $10.50 and $11 per share. Analysts expect the company will generate $6.69B in full-year sales and $10.13 per share in earnings. Amid the stronger-than-expected guidance, Super Micro reported third-quarter results, earning an adjusted $1.63 per share as revenue declined nearly 6% year-over-year to $1.28B. In late April, Super Micro Computer (SMCI) reported preliminary third-quarter revenue, citing new component shortages as the reason for the downfall.”

On the back of the preliminary third-quarter report, bearish debates increased after the FQ3 EPS miss of $0.08 and the challenging macroeconomic environment. However, where interest rates, credit risks, currency fluctuations, and supply chain risks are concerned, SMCI is focused on navigating those challenges and has done a great job throughout the last few years of volatility.

In a research report by a short-seller in January, there were a number of alleged issues and a great deal of information taken out of context. While there are some truths to the report, there are many inaccuracies, well-refuted by former Credit Manager and SA Analyst Jeremy Blum’s Rebuttal to Spruce Point Capital. SMCI’s efficiency, quality, performance, and plug-and-play module is driving results that led to a nearly 30% stock surge Wednesday.

Super Micro Stock Growth & Profitability

One of the largest global suppliers of Total IT Solutions, complemented by strong partnerships and a growing network, SMCI continues to gain market share with an increasing product portfolio. Despite its third-quarter EPS missing and revenue of $1.28B, down 5% year-over-year, revenues beat by $3.30M. Expecting to deliver at least 20% year-over-year growth, SMCI is accelerating its long-term growth objectives of $20B per year and is confident it will deliver Q4 revenues in the range of $1.7B to $1.9B.

SMCI Stock Growth Grades

SMCI Stock Growth Grades (SA Premium)

Showcasing excellent growth grades along with its A- Profitability Grade, SMCI is focused on increasing its margins and expanding customer reach while navigating headwinds. Despite its obstacles, SMCI has substantially outperformed the S&P 500 and Nasdaq while remaining undervalued with bullish momentum.

SMCI 1-Yr Stock Price-Performance Crushes the Nasdaq & S&P 500

SMCI 1-Yr Stock Price-Performance Crushes the Nasdaq & S&P 500

SMCI 1-Yr Stock Price-Performance Crushes the Nasdaq & S&P 500 (SA Premium)

SMCI Stock Valuation & Momentum

Possessing one of the best valuation frameworks compared to any stock in the IT sector, Super Micro’s B+ valuation grade is highlighted by A’s across the board. Its forward P/E ratio of 10.46x versus the sector’s 23.64x is more than a 55% difference to the sector; its trailing PEG of 0.03x, a -95% difference.

SMCI Stock Valuation

SMCI Stock Valuation (SA Premium)

In addition to its extreme discount, strong financials, and innovation to aid its growth and profitability in the future, SMCI’s momentum is extraordinarily bullish.

SMCI Stock & Momentum

SMCI Stock & Momentum (SA Premium)

Despite trading near its 52-week high, SMCI’s longer-term uptrend is lifting its 10-day moving average, and investors are paying higher prices for shares of this in-demand stock. With a quarterly price performance significantly outperforming the IT sector median peers, as you can see from the Momentum Grades above, SMCI is A+.

Don’t Sell Yourself Short. SMCI stock is a bullish AI disruptor.

An AI disruptor and Top Technology Stock, SMCI is a thriving global tech company added to the S&P midcap 400 Index this year. While rumors, geopolitical factors, and headwinds from slowing economies may affect Super Micro, based on its fundamentals and Seeking Alpha’s quant ratings, this stock is Strong Buy. So why bet against the bull?

Bullish momentum and unique product offerings are capitalizing on long-term secular growth trends in the IT space to help SMCI capture market share. Through its partnership with renowned semiconductor company NVDA, SMCI plans to scale and grow in AI.

Supported by strong guidance, excellent fundamentals, and a stellar balance sheet, SMCI has rallied to new heights. While some investors are willing to gamble on borrowing shares at what they believe is a premium price in hopes of the stock falling, you may get the short squeeze death grip. While past performance is no guarantee of future results, SMCI remains my bullish pick, a Top Stock for 2023.