Why Super Micro Computer Rallied Today
Key Points
Super Micro announced it had thwarted a smuggling attempt by one of its authorized resellers in Taiwan.
The incident likely reassured investors that Super Micro is getting more serious about bad behavior on the part of re-sellers, and is not a part of the smuggling scandal that surfaced back in March.
Super Micro also recently reported strong earnings, and this week announced a partnership with a European neocloud.
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Shares of Super Micro Computer (NASDAQ: SMCI) rallied 10.3% on Thursday as of 1:26 p.m. EDT.
Super Micro has been a controversial stock this year. In March, two employees -- one of whom was Super Micro's co-founder and a board member -- as well as a contractor in Taiwan, were charged with smuggling embargoed AI servers to China through third-party distributors in Taiwan.
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Super Micro was not charged, and noted that it had helped authorities in their investigation; however, the scandal involving employees and board members certainly cast a pall over Super Micro's stock.
Today, however, Super Micro announced that it had taken a proactive role in preventing another third-party smuggling attempt to China. With the announcement, Super Micro seems to be setting investors' minds at ease, suggesting it was a victim of wrongdoing back in March rather than the perpetrator.
Super Micro goes above and beyond
In today's press release, Super Micro announced it had collaborated with the Taiwanese government to prevent the illegal sale of about 50 AI servers to China:
We are proud to have worked closely with Taiwanese authorities on the recent event, helping to prevent the illicit diversion of our highly sought-after systems into the restricted China market. Our collaboration with authorities in Taiwan resulted in the arrest of three suspects and the seizure of 50 servers that had been deceptively acquired after being sold by Supermicro to an authorized reseller. We thank local law enforcement and legal officials for their vigilance and professionalism... This case highlights the challenges that can arise when products are resold through multiple downstream parties beyond direct manufacturer control. It also underscores the importance of continued collaboration across industry and government to strengthen safeguards, enhance supply chain visibility, and facilitate the enforcement of export control laws.
The fact that Super Micro appears to have gone above and beyond its traditional responsibilities to aid the Taiwanese government in stopping a smuggling ring is a strong signal that Super Micro is not in the business of illegally smuggling servers to China.
Super Micro also recently reported strong earnings with improving gross margins, and just yesterday it announced a big partnership with European neocloud Verda. So it's no wonder that putting the smuggling controversy to rest, at least for the moment, is sending the stock higher.
Image source: Getty Images.
Super Micro is among the cheapest of AI stocks
Super Micro currently trades at just 22 times trailing earnings and 13 times forward estimates. While there are some valid reasons for the big discount to other AI-related stocks, including these governance controversies and uncertainty over gross margins, Super Micro remains one of the cheapest AI-centric tech stocks in the market today. Still far off its 2024 highs, Super Micro remains a higher-risk but higher-upside play than some of the other AI darlings that have already had strong market runs.
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Billy Duberstein and/or his clients have positions in Super Micro Computer. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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