SMCI

Why Super Micro Computer Stock Just Crashed 17%

Recently red-hot Super Micro Computer (NASDAQ: SMCI) stock -- up 765% over the last 52 weeks -- turned ice cold Friday, falling 17.2% through 11:20 a.m. ET. And believe it or not, Wells Fargo is to blame.

This morning the bank reiterated its equal weight (i.e., hold) rating on the popular artificial intelligence (AI) stock, saying it thinks the shares are worth $960. Considering the stock closed at $928 Thursday evening, that doesn't sound so bad... except for one thing.

One bad thing about Supermicro stock

Super Micro Computer announced this morning that it will report its fiscal third-quarter 2024 earnings on Tuesday, April 30. Now, here's the thing: Seven of the last eight times Super Micro has announced an upcoming earnings report, says Wells Fargo, the company paired this news with a preannouncement of better-than-expected earnings.

That didn't happen this time.

All Supermicro said is that the earnings would be released, and not that they would be good earnings. And in Wells' view, this should be "considered a negative, important AI data point."

How scared should investors be?

Now, there's no need to panic. As Wells Fargo pointed out in its note on StreetInsider this morning, the single time (out of the last eight times) that Supermicro phrased an earnings announcement this way, it did at least announce "in line" earnings, basically matching its prior guidance. Assuming the same holds true this time around, that probably means investors can rest assured Q3 sales will still come in within the $3.7 billion to $4.1 billion range that management previously promised, and that earnings will still fall somewhere between $4.79 and $5.64 per share.

Still, when you consider that most analysts are expecting Supermicro to earn $5.84 per share this quarter, this does raise the risk that the company might miss at least the analysts' earnings number. And that alone could be enough to hurt the stock.

That's the risk you take when investing in a stock that costs 72 times earnings.

Should you invest $1,000 in Super Micro Computer right now?

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Wells Fargo is an advertising partner of The Ascent, a Motley Fool company. Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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