Super Micro Computer (NASDAQ:SMCI) exemplifies the age-old saying, “In like a lion, out like a lamb.” While this phrase traditionally describes March’s unpredictable weather, it aptly summarizes the turbulence the company experienced last year.
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Indeed, fueled by the AI boom, SMCI surged out of the gates in 2024, climbing over 300% in the early part of the year. But then, the headwinds appeared. Allegations of financial misconduct, the resignation of its auditor Ernst & Young, and delays in filing its annual report collectively sent the stock plummeting.
Despite these setbacks, the stock managed to end the year with a modest gain of 7%, though it was a far cry from the stellar performances of other tech giants, particularly those at the forefront of the AI revolution, and still lagged behind the broader market.
As 2025 begins, can SMCI chart a brighter path forward? According to top investor Danil Sereda, the answer may not be promising, as he predicts more storm clouds looming for the beleaguered company.
“I remain skeptical about SMCI’s recovery prospects, assuming that its suffering isn’t done yet,” cautions the 5-star investor, who sits in the top 4% of TipRanks’ stock pros.
Sereda believes that SMCI is still in the woods regarding its reputation and corporate governance, with no ‘rainbows’ peeking out from behind the storm clouds.
While Sereda does not dismiss the possibility of audited reports surpassing expectations, the investor does not view this as the most likely scenario.
Also concerning for the investor, Sereda cites a report that SMCI is planning on raising capital through a PIPE (i.e. private investment in public equity) mechanism. Such an approach would give PE firms access SMCI shares at a discount, diluting the ownership stake of existing shareholders along the way.
“If SMCI indeed decides to ‘go the PIPE way’ and dilute by 20%, it could translate into as much as $4.4 billion in share sale proceeds, significantly burdening existing shareholders,” explains Sereda. He also notes that SMCI would not require shareholder approval if the dilution remains under 20% of outstanding shares.
Anticipating PIPE financing and a subsequent dilution, Sereda believe there is a high likelihood that shares will “fall even lower.” As a result, he assigns SMCI shares a Hold (i.e. Neutral) rating. (To watch Sereda’s track record, click here)
Wall Street analysts echo this cautious stance. SMCI carries a Hold consensus rating, based on 2 Buy, 5 Hold, and 2 Sell recommendations. However, the 12-month average price target of $38.57 suggests a potential upside of ~27%. It remains to be seen whether analysts will revise their ratings upward or adjust price targets downward in the months ahead. (See SMCI stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured investor. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
