Super Micro Computer Is Trading at Its Best Valuation in 18 Months. Should You Buy the Dip?

Super Micro Computer (NASDAQ: SMCI) has been through some ups and downs over the course of the artificial intelligence era. It was the hottest AI stock on the market at the start of 2024, rising over 300%. Then fraud allegations surfaced, cratering the share price. But after a saga involving its auditor resigning and a new auditor coming in, Supermicro's leadership was cleared of any wrongdoing. However, the damage had been done, and today, despite some sharp oscillations along the way, the stock is only a bit above the price it traded at in January 2024.

However, over that same time frame, Supermicro has posted fairly strong growth. So could now be the right time to get back into the stock?

Image source: Getty Images.

Supermicro just made another eye-popping move

Supermicro is involved in the AI build-out via its server technology. It provides racking equipment and high-performance computing servers, including liquid-cooled options, to its clients. Its products are highly customizable, making it a popular choice for those looking to optimize racking designs to their specifications rather than buying off-the-shelf products.

As mentioned above, Supermicro's stock price is relatively close to where it was in early 2024, but its revenue has risen by over 250% since then. Meanwhile, profits have only risen by about 70%.

SMCI Revenue (TTM) data by YCharts

That's because Supermicro is facing serious margin pressure, as several companies operate in the same industry. Because there are few major differentiating factors between their products, they've become fairly commoditized, making it harder for Supermicro to maintain pricing power.

Meanwhile, Supermicro this month announced it was selling $7 billion worth of new equity to raise funds. This will significantly dilute existing shareholders and further pressure Supermicro's earnings per share because it's massively increasing the number of shares in circulation. Supermicro stock sold off heavily on this news, and now trades for less than 12 times fiscal 2026 earnings. The company's current market cap is only around $21 billion.

SMCI PE Ratio (Forward) data by YCharts.

Supermicro's fiscal 2026 ends this month, so it's probably better to use fiscal 2027's earnings estimates to value the stock on a forward-looking basis. From that standpoint, it trades for less than 10 times forward earnings. That's pretty cheap, but is it too cheap to ignore?

I'd say no. Supermicro's future is a bit murky because there's no telling how much more margin pressure it will face. I'd rather invest in a company that can control its own destiny, which is why I feel it makes a lot more sense to invest in AI companies like Nvidia rather than Super Micro Computer.

Keithen Drury has positions in Nvidia. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.