Shares of Super Micro Computer (NASDAQ: SMCI) are taking a breather today. But it’s not just because of the stock’s recent parabolic move higher. Super Micro shares have doubled in the past month but were lower by 11.3% as of 12:10 p.m. ET today.
That’s because the company announced the pricing for a $1.5 billion capital raise today.
A total AI solution
The plan to raise capital was announced earlier this week. Still, investors were caught up in a wave of buying any stock related to artificial intelligence (AI) after Nvidia‘s blowout quarterly earnings report. Super Micro shares also surged on that report and can now price its convertible note offering at an even higher price point. The company seeks to raise $1.5 billion by selling convertible senior notes based on yesterday’s closing price of $975 per share.
That’s a smart move by management, as it is near Super Micro’s all-time-high stock price hit last week. The company plans to use the money “to fund working capital for growth and business expansion.” But it will also be dilutive to existing shareholders. And after all the AI hype from Nvidia’s report, investors may also be realizing today that Super Micro isn’t nearly as profitable as Nvidia.
Revenue versus profitability
While Nvidia’s sales have been exploding higher, so has its gross profit margin. For its full fiscal year 2024, Nvidia expanded its gross profit margin from about 57% to nearly 73%. And it expects it to continue to rise.
Super Micro uses advanced chips as part of its solution for AI computer platforms needed for data center racks. And while sales are growing strongly, along with AI computing power, its margins have been sinking.
Super Micro reported a gross profit margin of just 15.4% in its most recent quarterly report, down from 16.7% in the prior-year period. And that was with sales surging 73% in the same period. Investors may be realizing that Super Micro’s business isn’t the same as Nvidia’s, and potential dilution from the capital raise brings a reason to take profits.
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Howard Smith has positions in Nvidia. The Motley Fool has positions in and recommends Nvidia. The Motley Fool recommends Super Micro Computer. The Motley Fool has a disclosure policy.
Why Super Micro Computer Shares Sank Friday was originally published by The Motley Fool
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