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SuperMicro: Is This a Bad Sign for the Server King or Was SprucePoint Just Completely Ridiculous?

Supermicro LogoLast year we shared news that famed short seller SprucePoint issued a damning report on SuperMicro.   As we wrote then:

The picture they paint is not atypical: CEO wants that sweet tech multiple but needs to demonstrate hypergrowth to keep it.  So he courts larger customers (and takes on concentration risk), fuzzes some of the accounting items that are open to interpretation, and tries to hide any sales stalls with bloated inventory or one-time write-offs.  Worth noting that in 2020, SMCI was charged with “widespread accounting violations” (as the SEC put it).

Another callout from the report is how reliant SuperMicro is on Facebook.  As Facebook cuts costs, they’re likely going to spend less on SuperMicro servers.

You can read the original report online.

There were some immediate shots fired at the research, only hours after it was published.

Now here’s the funny thing: the stock was trading in the mid-70s back then.  SprucePoint said “Based on our investigation, we estimate 40% to 50% downside risk, or $42.39– $50.86 per share.”

But that’s not what happened over the last year:


Youch.  Talk about a wrong bet.  Instead of dropping to $50, it shot to $910.

And a month ago it was over $1,100.

Today, Supermicro’s stock swooned 11% on the news that it is going to peddle $2 billion in a new stock offering.

Event have been happening fast and furious for SMCI:

  • It was added to the S&P 500 index on Monday.  This means all kinds of money will pour into the stock because now all those S&P 500 index funds are required to own it.
  • Last month, the company raised $1.7 billion in a convertible bond offering.

A lot of times, companies sell additional equity because they need the cash or are otherwise in trouble.  But another way to look at this is that the equity pie has gotten so big that shaving off a few percent through dilution is not going to make any of the existing shareholders too unhappy.  After all, if you’d put $10,000 in when the stock was at $70, you’d be sitting on about $130,000 today.

Either way, I don’t think SprucePoint investors are happy.


1 Comment

  1. Supermicro is a well-known manufacturer of servers and related hardware, but without specific context, it’s difficult to determine whether recent events indicate trouble for the company or if criticisms are unfounded. If Spruce Point, a financial research and investment firm, issued a report or commentary that questioned Supermicro’s business practices, financial health, or other aspects of its operations, it could potentially impact investor sentiment and the company’s stock price.

    March 22, 2024 @ 2:03 am | Reply

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