Down 78%, is this once-hot AI growth stock set to explode like the Rolls-Royce share price?

Our writer asks if he should invest in Super Micro Computer (NASDAQ:SMCI) following the growth stock’s massive recent decline.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Until recently, it was all going swimmingly for Super Micro Computer (NASDAQ: SMCI). The growth stock joined the prestigious S&P 500 in March, by which point it had surged by a staggering 6,600% in five years.

Then everything started unravelling for the IT infrastructure company. As I write, the share price has lost 78% of its value in just eight months. Talk about a fall from grace!

Created with Highcharts 11.4.3Super Micro Computer PriceZoom1M3M6MYTD1Y5Y10YALL5 Nov 20195 Nov 2024Zoom ▾Jan '20Jul '20Jan '21Jul '21Jan '22Jul '22Jan '23Jul '23Jan '24Jul '242020202020212021202220222023202320242024www.fool.co.uk

However, Rolls-Royce stands as a powerful example of what’s achievable through a successful turnaround. The FTSE 100 engine maker was on the brink of bankruptcy during the pandemic, yet it survived and is now thriving. The stock’s soared 1,300% in four years!

Should you invest £1,000 in Babcock right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Babcock made the list?

See the 6 stocks

Might such an epic rebound be on the cards for Super Micro stock at some point? Here are my thoughts.

Incredible growth

For those unfamiliar, the company makes hardware for data centres and artificial intelligence (AI) applications. Its energy-efficient servers (often packed with Nvidia‘s chips) have seen incredible demand as the generative AI revolution has exploded globally.

We can see this in Super Micro’s revenue, which more than doubled to $14.9bn last year.

Created at TradingView

Omnishambles

So why have the wheels come off? The reasons are almost too numerous to list. But starting in August, the firm said it wouldn’t be able to file its audited annual report on time. That’s obviously never a good sign.

Then an explosive report from short seller Hindenburg Research was published. In this, it made a number of serious allegations against Super Micro. The main ones were:

  • Accounting manipulation
  • Rehiring of top executives who were directly involved in past accounting scandals at the firm
  • Significant undisclosed business dealings with companies controlled by the CEO’s family members
  • Continuing to do business with Russia, violating US sanctions

Last month, it was reported that the US Department of Justice is in the early stages of investigating the company. Oh, and the Nasdaq is also threatening to delist the stock due to the missing annual report.

And as if all that wasn’t enough, Super Micro recently disclosed that Ernst & Young has resigned as its auditor (after just 17 months).

Should I buy Super Micro stock?

Now, it needs to be stated that Super Micro denies all these allegations. Also, Hindenburg Research is a short seller, which means it borrows shares and sells them, hoping to buy them back later at a lower price after a scathing report (pocketing the difference as profit). So it benefits from the stock’s decline.

Of course, it’s always possible for Super Micro to turn things around. A new auditor and management could stabilise things, while revenue and earnings may well continue to climb higher due to growing AI demand.

Moreover, the stock appears dirt cheap, trading at a mere 7 times forecast earnings for this financial year. So I wouldn’t totally rule out a big share price recovery.

However, I want no part of this. Reports say that Nvidia has started to route orders away from Super Micro due to these alleged accounting issues. If so, that could seriously impact future growth.

Moreover, on announcing its resignation, Ernst & Young said it was “unwilling to be associated with the financial statements prepared by management“. Yikes!

There’s far too much uncertainty here for me. Therefore, I’ll invest elsewhere in November.

5 Shares for the Future of Energy

Investors who don’t own energy shares need to see this now.

Because Mark Rogers — The Motley Fool UK’s Director of Investing — sees 2 key reasons why energy is set to soar.

While sanctions slam Russian supplies, nations are also racing to achieve net zero emissions, he says. Mark believes 5 companies in particular are poised for spectacular profits.

Open this new report5 Shares for the Future of Energy — and discover:

  • Britain’s Energy Fort Knox, now controlling 30% of UK energy storage
  • How to potentially get paid by the weather
  • Electric Vehicles’ secret backdoor opportunity
  • One dead simple stock for the new nuclear boom

Click the button below to find out how you can get your hands on the full report now, and as a thank you for your interest, we’ll send you one of the five picks — absolutely free!

Grab your FREE Energy recommendation now

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Ben McPoland has positions in Rolls-Royce Plc. The Motley Fool UK has recommended Nvidia and Rolls-Royce Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Like buying £1 for 51p

This seems ridiculous, but we almost never see shares looking this cheap. Yet this recent ‘Best Buy Now’ has a price/book ratio of 0.51. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 51p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 8.5%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

More on Investing Articles

Smart young brown businesswoman working from home on a laptop
Investing Articles

Down 15% in a week! Are these 5 FTSE 100 fallers screaming buys as markets plunge?

Five of Harvey Jones's favourite FTSE 100 stocks all have the same thing in common – they've fallen around 15%…

Read more »

Hand of person putting wood cube block with word VALUE on wooden table
Investing Articles

2 stocks that have been crushed and now offer a ton of value

Edward Sheldon has been scanning the market for stocks that offer value after the sell-off. Here are two shares he…

Read more »

Light trails from traffic moving down The Mound in central Edinburgh, Scotland during December
Investing Articles

£10,000 invested in Aston Martin shares at Christmas is now worth…

Aston Martin shares have fallen from above £10 in early 2020 to pennies today. Is this the perfect time for…

Read more »

Mindful young woman breathing out with closed eyes, calming down in stressful situation, working on computer in modern kitchen.
Investing Articles

Up 5% in the last crazy week! Are these 2 income stocks the ultimate FTSE defensive plays?

Harvey Jones picks out two FTSE 100 dividend income stocks that have actually climbed while stock markets are heading in…

Read more »

British flag, Big Ben, Houses of Parliament and British flag composition
Investing Articles

2 beaten-down UK shares that now look really cheap

Looking for cheap shares to consider for the long term? These two British stocks offer a lot of value right…

Read more »

Middle-aged white man pulling an aggrieved face while looking at a screen
Investing Articles

As stocks tank, is this a rare chance for ISA investors to get rich?

Shares have collapsed globally and valuations are becoming, on paper at least, a lot more attractive. Dr James Fox explores…

Read more »

Investing Articles

2 strong FTSE 100 dividend shares to consider as recessionary risks increase

Looking for secure passive income stocks to consider buying as thumping trade tariffs loom? Here are two FTSE 100 dividend…

Read more »

Investing Articles

Can Greggs shares offer shelter from Trump’s tariff chaos?

Greggs' shares have plummeted in recent months. But with very little exposure to the US or tariffs, could the stock…

Read more »