I Just Bought the Dip on Super Micro Computer Stock

Super Micro Computer (NASDAQ: SMCI) investors have been on a roller-coaster ride in 2024. The stock entered the year at $280, then it quickly peaked at nearly $1,200 in March. Since then, it's been a near-straight fall down, and the stock currently sits around $440.

There are some good reasons why Supermicro fell from its $1,000-plus stock price earlier this year, but I also think its current price is an absolute steal, which is why I just bought the dip on the stock.

Supermicro hasn't had much positive news lately

Super Micro Computer builds components for computing servers as well as full server solutions themselves. Its claim to fame in this world is that it offers highly customizable servers that can be tailored for any workload size or type. Additionally, its liquid-cooled technology alongside other innovations make its servers the most efficient in the world. This is critical, as the energy input costs into these servers are incredibly high.

With massive demand for data center parts and servers, Supermicro's business has boomed, following a similar growth trajectory as Nvidia. This caused the stock to rise earlier this year, but the company has hit two major stumbling blocks along the way.

First, Supermicro's gross margin plummeted in 2024, continuing a trend that started in 2023.

This is a problem, as a plummeting gross margin can signal pricing competition, indicating that Supermicro has no real competitive advantages. However, management points to the upfront costs of getting its liquid cooling technology up and running. It expects its gross margin to improve as components become more readily available throughout fiscal year 2025 (ending June 2025).

This should also improve bottom-line profitability and is a key trend to watch over the next year.

The second cause for Supermciro's decline was Hindenburg Research's short report. Hindenburg is a famed short-seller, which means it profits as the stock declines. It is known to release reports on various companies, explaining why it believes the stock is mispriced. In Supermicro's case, it alleges accounting malpractice as one of the chief concerns. Supermicro didn't do itself any favors in beating these allegations by delaying its end-of-year form 10K filing to the Securities and Exchange Commission (SEC) either.

The Hindenburg report doesn't concern me as much as the falling margins do, as if there are any issues, it likely only accounts for a very small fraction of Supermicro's business.

As for the margins, the market is valuing the stock like it will never return to normal, which is a huge investment opportunity.