Super Micro Computer, commonly known as Supermicro, has revealed plans to initiate a 10-for-1 stock split following its fiscal 2024 fourth-quarter results announcement. The split, set to take place after the market close on Monday, Sept. 30, will grant investors nine additional shares for each share they own. Trading on a split-adjusted basis will commence on Tuesday, Oct. 1.
Supermicro’s decision to split its stock comes after a remarkable performance, with the company’s stock surging 60% over the past year and an astounding 1,520% over the past decade. To gain insights into the potential impact of the stock split, analysts from Bank of America conducted research, revealing that companies that have undergone stock splits have delivered total returns of 25% in the 12 months following the split, compared to the S&P 500 index’s returns of 12%. However, it is important to note that the stock split itself may not be the sole cause of higher gains, but rather a reflection of the strong business and financial results that necessitated the split.
Examining Supermicro’s recent financial results, the company reported record revenue of $5.31 billion in its fiscal 2024 fourth quarter, representing a remarkable 143% year-over-year increase and a 38% quarter-over-quarter increase. Adjusted earnings per share (EPS) also saw a significant jump of 78% to $6.25. Despite these impressive figures, investors expressed concerns over profit margins, which were impacted by a shortage of specific server components, resulting in $800 million in sales shifting to the next quarter. CEO Charles Liang reassured investors that the upcoming production facility in Malaysia would play a crucial role in increasing profitability, indicating a potential rebound in profit margins.
Supermicro’s market share in the AI server market is also worth noting. Bank of America analysts predict that the company’s market share will rise from 10% in 2023 to 17% by 2026, while Keybanc Capital Markets analyst Thomas Blakey is even more bullish, forecasting a market share of 23% this year.
However, recent events have cast a shadow over Supermicro. The company faced allegations of accounting irregularities, undisclosed related-party transactions, and export control issues in a short report by Hindenburg Research. Nevertheless, analysts at JPMorgan, who maintained a buy rating and a $950 price target, noted that the report lacked substantial evidence and mostly reiterated existing issues. Until evidence to the contrary emerges, Supermicro remains a favorable investment option.
The ongoing debate surrounding the longevity of AI-fueled growth is another factor to consider. While some suggest that the AI boom is nearing its end, others believe there is still significant upside potential for years or even decades. Research compiled by McKinsey & Company indicates that the generative AI market could contribute $2.6 trillion to $4.4 trillion to the global economy over the next decade, with estimates continually growing.