Super Micro Computer Inc. (NASDAQ: SMCI) stock is down more than 13% the morning after it delivered its fourth quarter and full-year 2024 earnings report. The curiosity isn’t why the stock is down but why it shot higher in the immediate aftermath of the report.
The headline numbers were below analysts’ expectations. Revenue of $5.31 billion was roughly in line with the $5.32 billion that was forecast. However, earnings per share of $6.25 was down sharply from the $7.63 that analysts were expecting. Furthermore, Super Micro showed another decline in its profit margin, which is spooking investors.
Super Micro: Winning the Race but Not Getting the Prize
Super Micro Computer's revenue has spiked sharply in the last 12 months due to demand for its products in data centers. In the last three quarters, that revenue growth has been matched by strong earnings growth making it not only one of the best artificial intelligence stocks, but one of the best technology stocks to own.
However, even during those quarters, there were concerns that the company was winning a race to the bottom. That is the company’s servers are a notoriously low-margin business. The concern is that it will be difficult for the company to grow revenue at the rate needed to increase earnings at a rate that would support the company’s stock price.
If you were concerned that SMCI stock was priced for perfection, these results are giving you a reason to sell.
Super Micro's Higher Guidance Suggests That Context Matters
Management was quick to point out that there were some mitigating factors to its declining margins. This included selling servers to hyperscale customers who have the power to command higher discounts. Plus, they had some outsized costs due to supply chain disruptions specific to its new Direct Liquid Cooling system.
And based on the company’s forward guidance, it doesn’t believe those problems will be long-term concerns. The company is guiding for revenue between $26 billion and $30 billion in FY2025. The high end of that range is double the revenue the company generated in all of 2024.
In terms of earnings, Super Micro didn’t offer full-year guidance but raised its guidance for the first quarter to a range between $6.69 to $8.27. At the low end, that would be 7% higher than the current quarter and 143% year-over-year.
Super Micro Is Splitting Its Stock
If you didn’t have enough to consider regarding SMCI stock, the company gave investors one more thing to consider. In late September, Super Micro will complete a 10-for-1 stock split. This was the key reason the stock shot up about 10% in after-hours trading.
That means that once the split is completed, current shareholders will receive nine additional shares of SMCI stock for every share they own. However, as investors know, the split doesn’t change the company’s stock's fundamental value.
So why split? In the case of Super Micro it may just be a case of managing its current growth. Revenue and earnings have shot higher on increased demand in the last two years. And consider that just five years ago, SMCI stock was trading for under $20 per share. This split will make the stock more accessible for investors who would prefer to buy full shares.
Is SMCI Stock a Buy Before the Split?
Every investor has to answer that question for themself. However, it’s worth noting that the sell-off in SMCI stock has pushed it near oversold territory. And considering the stock has been trading in a fairly defined range since April, there could be a bounce before the stock split closes.
