Super Micro39s vertical stock movement suggests a casino mentality

Super Micro's vertical stock movement suggests a “casino mentality.”

(Bloomberg) — Shares of Super Micro Computer Inc. wobbled in volatile trading Friday, threatening to derail what was supposed to be the server maker's best week ever.

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Shares rose as much as 7.4% before falling sharply, plunging nearly 14%. The stock had risen more than 35% this week before Friday's decline. Should it end the session in the red, it would be the result of a nine-session winning streak, the longest such streak since 2016.

The weekly jump shows how investors are gravitating towards Super Micro, which has become one of the hottest names in artificial intelligence. The stock has risen in 18 of the last 20 sessions through Thursday and has more than tripled this year. This corresponds to an increase of 246% compared to 2023.

“When things are going so fast, it's not because institutions want to hold something as a long-term investment, but rather because of a casino mentality for people who are betting on momentum and trying to take some risk,” said Michael Matousek, chief trader at US Global Investors Inc “I'm sure some people will get run over trying to shut this thing down, and while others have probably succeeded well, it really depends on luck to catch something like this.”

The rally has seen Chief Executive Officer Charles Liang's wealth quadruple to $7.8 billion this year. This makes him the largest percentage gain in the Bloomberg Billionaires Index of the world's 500 richest people.

Ten minutes after the start of Friday's session, around 50,000 options on the stock had already been traded – led by the contracts expiring on Friday. The most active option was a call, which requires an additional 13% rally by the end of the day to be worth anything. Earlier this week, the one-month call skew hit its highest level in more than a year – a sign of additional premiums for upside risk compared to downside protection. Skew decreased a bit on Thursday.

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The rally had pushed Super Micro's market valuation to more than $56 billion at one point, making it larger than longstanding semiconductor companies such as Microchip Technology Inc. With a weighting of 1.8% in the Russell 2000 Index, the company is the largest single stock in the Index dates back to 1999, according to Bloomberg Intelligence.

The San Jose, California-based company has become a darling for investors seeking access to artificial intelligence and the infrastructure, such as chips and servers, that run AI applications. Bank of America, which began coverage on the stock earlier this week with a “buy” rating and a “Street-high” price target, expects the market for AI servers to grow over the next three years will grow at a compound annual growth rate of 50% said it expects Super Micro to be a key beneficiary of this growth.

Growth expectations are so robust that Super Micro doesn't trade with the kind of frills in valuation that characterize other investor favorites. Shares trade at 39 times estimated earnings, compared with more than 90 for Arm Holdings Plc, the chip designer that recently gave an upbeat revenue forecast that it attributed in part to AI spending. Nvidia Corp, perhaps the most prominent beneficiary of AI interests, has a multiple of about 34.

Preliminary quarterly results released last month far exceeded expectations and the company subsequently raised its revenue guidance.

Wall Street has noticed. According to data compiled by Bloomberg, analyst consensus for Super Micro's 2025 net earnings rose 52% last month, while its revenue forecast rose at a similar rate.

Some analysts have warned about the magnitude of the stock move. Wells Fargo Securities began reporting Friday with an equal-weight rating and said shares “already factor in solid upside potential.” Still, analyst Aaron Rakers said the company's “AI-driven fundamental momentum, underpinned by tech-focused differentiation, has been nothing short of remarkable and should support a sustained valuation reassessment.”

– With assistance from Kristine Owram and Carly Wanna.

(Updates on market open, adds context on Russell weighting and CEO wealth. Adds trader comments.)

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