Why Super Micro Computer Stock Plummeted This Week

Super Micro Computer (SMCI) has seen a significant decline in its stock price over the last week of trading. By the end of Friday’s session, the company’s share price dropped by 13.3% compared to the previous week, according to data from S&P Global Market Intelligence.

The decline in Supermicro’s stock price this past week was influenced by the latest interest rate news from the Federal Reserve, which caused a shift in investor sentiment towards stocks. While the Federal Reserve announced a 25-basis-point interest rate cut, which had been widely anticipated by the market, comments from Chair Jerome Powell unsettled investors.

The Fed's Rate Outlook Affects Supermicro Stock

During a recent meeting on Wednesday, the Federal Reserve implemented its third interest rate cut since September, lowering the benchmark rate to 4.25%. This change marks a decrease from the previous high of 5.25% established in July 2023. Generally, while higher interest rates are utilized to control inflation, they often result in weaker performances in the stock market.

The Fed had previously indicated expectations of four rate cuts of 25 basis points each in the upcoming year. However, after the recent meeting, it revised this outlook, stating that it now anticipates only two such cuts in 2025. This change in expectations contributed to substantial sell-offs in the market, particularly affecting companies that are reliant on growth and speculative investments. At one point during the week, Supermicro's stock was down as much as 16.3% but managed some recovery.

What Lies Ahead for Supermicro?

On Friday, a report surfaced from The Information, indicating that the U.S. Department of Commerce had initiated an investigation into how Nvidia’s high-performance graphics processing units (GPUs), intended for artificial intelligence (AI) applications, had ended up in China. Given the escalating tensions between the U.S. and China, the U.S. has imposed export bans that restrict the sale of advanced AI processors and semiconductor manufacturing equipment to China.

The report suggested that Nvidia has reached out to major server manufacturers, including Super Micro Computer and Dell, to explore the possibility of any pass-through sales that might have occurred from customers based in Southeast Asia. This investigation presents an additional risk factor for Supermicro moving forward.

Although no confirmations have been made, there are rumors suggesting that China might be accessing Nvidia's advanced processors by purchasing servers from Supermicro. Additionally, The Wall Street Journal reported in October that the U.S. Department of Justice had begun an investigation into Supermicro. While speculation leaned towards potential accounting irregularities, some investors speculated that it could also involve violations of the export ban.

Supermicro announced plans to file its delayed 10-K report by February 25, and the results will be closely scrutinized. Should the company report its findings without substantial revisions to previously filed financial results, it could see a significant spike in stock prices. Conversely, the stock may experience a steep decline if the company's new financial auditor determines that prior results need substantial downward adjustments.

Supermicro, Stock, Investors