The highly anticipated day has finally arrived for Super Micro Computer (NASDAQ: SMCI). The tech company’s stock split has taken place after the market closed, and the shares will start trading tomorrow at a new, lower price. Supermicro now joins other AI stocks like Nvidia and Broadcom that have recently undergone similar operations.
The stock split was initiated to make shares more accessible to a wider range of investors. Supermicro’s shares have seen a significant increase in recent years due to the AI boom, with revenue rising by triple digits. The company has become a go-to choice for AI customers in need of servers, workstations, and other products for their data centers. Despite the impressive 188% surge in the first half of the year, surpassing even Nvidia’s gains and crossing the $1,000 mark, investors speculated that a stock split was on the horizon. The announcement of the stock split came alongside Supermicro’s quarterly earnings report in August.
However, unlike Nvidia and Broadcom, Supermicro’s shares did not see a rise following the split. Various negative news reports have impacted the stock price, including a short report by Hindenburg Research and a delay in filing the 10-K annual report. Additionally, reports of a Justice Department probe based on the short report have further weighed on Supermicro’s shares, leading to a nearly 30% decline since late August.
Despite these challenges, Supermicro’s stock split is now underway, presenting an opportunity to delve deeper into the company. Here’s what you need to know:
Why do companies launch stock splits?
Stock splits are designed to reduce the per-share price of a stock, making it more affordable for investors to purchase additional shares. The intrinsic value of the company remains unchanged, and while the per-share price decreases, the overall valuation and market value remain the same. Stock splits do not necessarily make shares cheaper but aim to attract more investors over time. It indicates the company’s confidence in its future growth potential.
Supermicro’s 10-for-1 stock split means that shareholders will receive nine additional shares for every share they own, resulting in a lower per-share price. The total value of the holding remains the same, but each share’s value decreases. With the current stock price as a reference, one share’s value is expected to decrease from around $400 to $40 after the split. The new split-adjusted price of Supermicro stock will be around $40 when trading resumes tomorrow.
Should you invest in Supermicro?
While the stock split may make it easier to purchase Supermicro shares at a lower price, it does not fundamentally change the investment decision. The decision to buy before or after the split doesn’t significantly impact the long-term outlook. Supermicro’s current valuation at 11x forward earnings estimates may appeal to aggressive investors looking for opportunities. Despite the negative reports and uncertainties surrounding the company, Supermicro’s leadership in the market and strong demand from AI customers suggest positive long-term prospects.
In conclusion, while Supermicro’s stock split may present a buying opportunity for some investors, caution is advised due to the recent negative news and potential volatility. Waiting for further clarification on the issues raised by Hindenburg Research and the delayed annual report filing may be prudent before making any investment decisions.
Source: The Motley Fool