Why Super Micro Computer Stock Plummeted This Week

Super Micro Computer (SMCI) saw its stock prices decline significantly this past week. By the end of Friday's trading session, the company's share price was down 13.3% from the previous week's close, according to data from S&P Global Market Intelligence.

The drop in Supermicro's share price can be attributed to recent interest rate developments from the Federal Reserve. Although the Fed announced a 25-basis-point interest rate cut, which was widely expected by the market, comments made by Chair Jerome Powell unsettled investors.

The Fed's Rate Outlook Results in Sell-offs for Supermicro Stock

The Federal Reserve convened on Wednesday and made a decision to implement its third rate cut since September. This action lowered the benchmark interest rate to 4.25%, down from its peak of 5.25% set in July 2023. While interest rate hikes are a strategy to manage inflation, they often lead to lower stock market performance.

Previously, the Fed had indicated that it anticipated four rate cuts of 25 basis points each for the coming year. However, during the last meeting, the central bank revised its forecast, now expecting only two similar cuts in 2025. This altered outlook instigated significant sell-offs in the market, especially among companies that rely heavily on growth and speculative earnings. Consequently, Supermicro's stock dipped as much as 16.3% throughout the week, although it did experience some recovery later on.

What Lies Ahead for Supermicro?

On Friday, a report from The Information revealed that the U.S. Department of Commerce had launched an investigation into how Nvidia's advanced graphic processing units (GPUs) used in artificial intelligence (AI) applications may have made their way to China. Given the escalating tensions between the U.S. and China, there are existing export controls that prohibit the sale of advanced AI processors and semiconductor manufacturing equipment to China.

The report indicated that Nvidia has requested major server manufacturers, including Super Micro Computer and Dell, to investigate any possible pass-through sales that could have transpired from clients in Southeast Asia. This investigation poses an additional risk for Supermicro.

While no definitive conclusions have been reached, there have been speculations that China has gained access to Nvidia's high-end processors by means of purchasing servers from Supermicro. Earlier in October, The Wall Street Journal reported that the U.S. Department of Justice had opened an inquiry into Supermicro, with rumors surrounding potential accounting irregularities within the company. However, some investors suggested that the investigation might also revolve around a breach of export regulations.

Supermicro has stated that it will be submitting its delayed 10-K report by February 25. This report will come under close scrutiny from investors. If the company manages to release a report without significant restatements of previously reported financials, there could be a substantial increase in its stock price. Conversely, if a new auditor identifies major alterations requiring downward revisions, the stock may face further declines.

No positions are held by the author in any mentioned stocks. The author notes that Nvidia has been previously recommended by analysts.

Supermicro, Stock, Fed