Super Micro Computer shares rise on shipment news. Can stocks continue to rebound?

After a strong start to the year, shares Super Micro Computer (NASDAQ: SMCI ) It's under a lot of pressure after a disappointing earnings report, unwanted attention from a notable short-seller, delays in its annual 10-K filing, and a possible investigation by the Department of Justice (DOJ). However, the stock rose after the company issued a press release citing its quarterly shipment numbers.

With that background, let's take a closer look at the company's latest announcement, what it means, and whether it could be the start of a big rebound for the stock.

Run over 100,000 GPUs

As part of an announcement to introduce new cooling technology, Supermicro slipped in the headline of the press release that it is currently shipping 100,000 graphics processing units (GPUs) per quarter. It clarified in the release that it has recently deployed more than 100,000 GPUs with direct liquid cooling (DLC) solutions for some very large data centers built to power artificial intelligence (AI) applications.

Now, it is important to understand exactly what Supermicro does as it pertains to this statement. It doesn't design like a GPU Nvidia or produce like them Taiwan Semiconductor. What it does is buy components like GPUs and then design and assemble server and rack solutions for customers.

The company does not offer the same level of support made by branded servers DelBut it sells them at much lower prices. Supermicro carved out a niche by being one of the first server companies to embrace DLC. GPUs generate a lot of heat, so they must be kept cool to help avoid failures and save energy costs.

To promote this technology, Supermicro is charging the same price as more standard air-cooled systems. While Dell has the DLC technology, it's just starting to ramp it up, so Supermicro has the first-mover advantage.

Selling more high-priced GPUs will boost revenue, but the company isn't collecting a big markup on those chips. As such, it has very low gross margins, which have come under pressure recently. In the last quarter, its gross margin fell to 11.2%, down from 17.0% year-over-year. By comparison, Nvidia reported a gross margin of 75% in its latest quarter, while contract manufacturer Taiwan Semiconductor's gross margin was 53%.

Can stocks continue to rebound?

Beyond margin pressure, the supermicro stock has come under fire from Hindenburg Research for allegations of accounting manipulation, sanctions violations and management self-dealing. A few years ago, the company settled with the SEC for similar accounting issues for $17.5 million, although the company did not acknowledge the SEC's claim.

And to make matters worse, Supermicro delayed filing its annual report in the wake of Hindenburg's brief report. since then, The Wall Street Journal also reported that the DOJ is investigating the company for accounting issues, although neither party confirmed the existence of an investigation.

As troubling as some developments may be, Supermicro is clearly benefiting from pouring billions of dollars into building AI infrastructure. It may not have a particularly wide moat, but as larger tech companies scoop up GPUs in a massive arms race, it will continue to benefit.

The stock isn't expensive, either, as it trades at 14 times analysts' fiscal 2025 earnings estimates. It's not a stock you should expect to command a high price-to-earnings multiple, but it's undervalued given the AI ​​growth opportunity ahead of it.

The question, of course, is what comes next? There are a number of scenarios where the stock could rally, but SuperMicro remains a risky pick because of uncertainty surrounding its annual report and potential DOJ investigation. Investors should approach the shares with caution.

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Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia and Taiwan Semiconductor Manufacturing. Motley Fool has a revealing policy.

Super Micro Computer shares rise on shipment news. Can stocks continue to rebound? Originally published by The Motley Fool