The Meteoric Rise of Super Micro Computer – Insider Weekends

Super Micro Computer Inc (SMCI): $740.29

Market Cap:$41.41B

Enterprise Value: $41.08B

Almost exactly a year ago, we came across a $250,000 purchase of the server and storage solutions company Super Micro Computer Inc. (SMCI) by Director Shiu Leung (Fred) Chan. At the time, the stock was trading at around $80 per share, and we noted the incredible revenue growth the company was seeing despite it being a difficult time for tech companies as a whole. The stock was fairly cheap with a P/E of 7 despite the stock rising  112% over a twelve month period.

A year later, the stock has risen by over 700%, now trades at $740.29 a share, and has a P/E of 56.54. Director Chan remains the only insider to purchase shares of the company, having made additional purchases in May and August 2023. Each time, we took another brief look at the company (which had only continued to run up), but figured it was part of a bubble that would come to an end. However, after seeing the incredible growth over the last year, when Director Chan purchased shares once again this week, we figured it was at last time to take a closer into the company to understand what was causing the stock price to go vertical.

What exactly does Super Micro Computers (known generally as Super Micro) do? The company was founded in 1993 by Charles Liang (who now serves as Chairman and CEO) and his wife Sara Liu (who is a Director and SVP) in San Jose, California. At its core, the company is a hardware business, which explains its relatively low gross margin of just over 16% and net income margin of 8%. The company originally started by manufacturing motherboards for computers, but soon moved to producing servers and subsystems. Super Micro soon began to strike major partnerships with other hardware providers, like Intel and more recently, the leading GPU manufacturer Nvidia. These special partnerships, coupled with their immense production power (4,000 server racks per month) seem to have propelled Super Micro to the new heights.

Looking at Super Micro’s recent financial results, the second quarter of fiscal 2024 (ended December 31, 2023) was yet another strong quarter. Revenue was $3.66 billion, a 103% increase YoY and 73% increase on a sequential quarter basis. The company continued to see demand for their AI systems (through a partnership with Nvidia) rise, in addition to demand for their special liquid cooling solutions.

Net income also grew on both a QoQ and YoY basis to $295 million, though free cash flow did become negative this quarter. Revenue guidance for Q3 2024 is sky high, predicting anywhere from $3.7B to $4.1B, an increase of 188% to 219% YoY (though slightly less growth on a sequential quarter basis).

There are a few issues to be aware of about Super Micro. While the company does claim to be an American company with products developed in the United States, they have a manufacturing subsidiary in Taiwan called Ablecom. Ablecom designs and manufactures high quality server chassis, and the company is operated by Charles Liang’s brother Steven Liang. Charles Liang and Sara Liu together also own approximately 30% of Ablecom. This relationship has caused some tension in the past, especially due to allegations of Chinese malware being implanted into Super Micro’s products over the years. In late 2021, Super Micro was also accused of supplying servers to Russia.

That being said, with Super Micro’s key partners like Nvidia (NVDA) and Advanced Micro Devices (AMD), seeing immense growth over the last year, it’s unsurprising that Super Micro’s own rise has been meteoric. Demand for Nvidia’s GPUs is incredibly high due to the AI boom and bitcoin reaching new highs. A rising tide lifts all boats and Super Micro is benefiting from this rising tide.

As long as the industry as a whole remains focused on AI and Nvidia continues to thrive, we expect Super Micro will continue to benefit from these trends, and the stock is likely to continue running up. However, given how far and fast the company has already grown, we remain wary of when this bubble will finally pop. We’ll continue to remain watchful of early signs of these key trends reversing – demand for Nvidia’s GPU’s dropping, a drop in the AI hype cycle, and more. These signs could be the canary in the coal mine when it comes to Super Micro’s future prospects. It is worth noting that besides the one director, no other insider of Super Micro has been buying shares.

Editor’s Note: Tamanna Suria contributed to this article.

Welcome to edition 720 of Insider Weekends. Insider buying increased with insiders purchasing $43.11 million of stock compared to $40.05 million in the week prior. Selling increased significantly to $3.87 billion compared to $731.37 million in the week prior.

Sell/Buy Ratio: The Insider Sell/Buy ratio is calculated by dividing the total insider sales in a given week by the total insider purchases that week. The adjusted ratio increased to 89.76. In other words, insiders sold more than 89 times as much stock as they purchased. This week, the Sell/Buy ratio was favorable, compared to the prior week when the ratio stood at 18.03.

Notable Insider Buys:

1. Charter Communications Inc. (CHTR): $291.15

President and CEO Christopher L. Winfrey acquired 5,050 shares of  this broadband and cable operator, paying $295.29 per share for a total amount of $1.49 million. Mr. Winfrey increased his stake by 9.59% to 57,703 shares with this purchase.

You can view the list of recent insider transactions for Charter Communications Inc. – Class A here.

2. Opko Health Inc (OPK): $1.05

CEO & Chairman Phillip Frost MD acquired 1,500,000 shares of this  healthcare company, paying $0.98 per share for a total amount of $1.46 million.

You can view the list of recent insider transactions for Opko Health Inc here.

3. Super Micro Computer Inc (SMCI): $740.29

Director Shiu Leung Chan acquired 2,000 shares of this computer hardware company, paying $568.00 per share for a total amount of $1.14 million. Mr. Chan increased his stake by 4.89% to 42,917 shares with this purchase.

You can view the list of recent insider transactions for Super Micro Computer Inc here.

4. NextEra Energy Inc (NEE): $56.58

Director Kirk S. Hachigian acquired 20,000 shares of this regulated electric company, paying $55.84 per share for a total amount of $1.12 million.

You can view the list of recent insider transactions for NextEra Energy Inc here.

5. CVB Financial Corp. (CVBF): $17.18

Shares of this regional bank acquired by 2 insiders:

• Director George A. Borba acquired 59,601 shares, paying $16.78 per share for a total amount of $999,998.
• President & CEO David A. Brager acquired 2,000 shares, paying $16.75 per share for a total amount of $33,500. Mr. Brager increased his stake by 1.33% to 152,814 shares with this purchase.

You can view the list of recent insider transactions for CVB Financial Corp. here.

You can view the full list of purchases from this Insider Buying page.

Notable Insider Sales:

1. Amazon.com Inc. (AMZN): $174.45

Shares of Amazon were sold by 3 insiders:

• Executive Chair Jeff Bezos sold 11,997,698 shares for $170.21, generating $2.04 billion from the sale.
• CEO Worldwide Amazon Stores Douglas J. Herrington sold 20,200 shares for $169.99, generating $3.43 million from the sale.
• CEO Amazon Web Services Adam Selipsky sold 1,000 shares for $162.36, generating $162,360 from the sale.

You can view the list of recent insider transactions for Amazon.com Inc. here.

2. Meta Platforms Inc. (META): $468.11

Shares of Meta were sold by 2 insiders:

• COB and CEO Mark Zuckerberg sold 408,453 shares for $462.51, generating $188.91 million from the sale.
• Chief Legal Officer Jennifer Newstead sold 552 shares for $464.00, generating $256,128 from the sale.

You can view the list of recent insider transactions for Meta Platforms Inc – Class A here.

3. Stryker Corp. (SYK): $341.96

Shares of this medical technology company were sold by 2 insiders:

• Director Ronda E. Stryker sold 293,442 shares for $341.97, generating $100.35 million from the sale.
• Director Allan C. Golston sold 3,273 shares for $341.00, generating $1.12 million from the sale.

You can view the list of recent insider transactions for Stryker Corp. here.

4. DraftKings Inc. (DKNG): $43.38

Shares of this digital sports entertainment and gaming company were sold by 2 insiders:

• Chief Legal Officer Stanton Dodge sold 686,101 shares for $43.06, generating $29.54 million from the sale.
• CEO and Chairman Jason Robins sold 450,000 shares for $43.06, generating $19.38 million from the sale.

You can view the list of recent insider transactions for DraftKings Inc. – Class A here.

5. MACOM Technology Solutions Holdings Inc. (MTSI): $83.61

Shares of this semiconductors company were sold by 2 insiders:

• Director Susan Ocampo sold 465,993 shares for $81.37, generating $37.92 million from the sale.
• Senior VP and CFO John Kober sold 12,892 shares for $79.95, generating $1.03 million from the sale.

You can view the list of recent insider transactions for MACOM Technology Solutions Holdings Inc here.

You can view the full list of sales from this Insider Sales page.

The list of all insider purchases and sales by management people is only available to InsideArbitrage Premium and Plus members.