Why Super Micro Computer Stock Plummeted This Week

Super Micro Computer (NASDAQ: SMCI) saw a significant drop in its stock price over the last week of trading. By the end of Friday's session, the company's shares were down 13.3% compared to the previous week's close, as reported by S&P Global Market Intelligence.

The decline in Supermicro's stock price can be attributed to changes in interest rate expectations from the Federal Reserve. Although the Fed implemented a widely anticipated interest rate cut of 25 basis points, Chair Jerome Powell's subsequent remarks unsettled investors.

The Fed's Rate Outlook Drives Sell-Offs

During its latest policy meeting on Wednesday, the Federal Reserve delivered its third rate cut since September, lowering the benchmark interest rate to 4.25%. This rate is notably down from the peak of 5.25% established in July 2023. While increasing interest rates are typically a tool used to combat inflation, they often lead to weaker stock market performance.

Prior to this meeting, the Fed had indicated expectations for four rate cuts of 25 basis points in the following year. However, after Wednesday's announcements, the central bank revised its outlook, now suggesting only two rate cuts of that magnitude in 2025. This shift resulted in a wave of sell-offs, severely impacting companies with growth-focused and speculative stock prices, including Supermicro. During the week, Supermicro's share price dipped as much as 16.3% before showing slight recovery.

Future Challenges for Supermicro

This week, a report from The Information indicated that the U.S. Department of Commerce has launched an investigation into how Nvidia's cutting-edge graphics processing units (GPUs), essential for artificial intelligence (AI) applications, ended up in China. The investigation arises amidst escalating tensions between the U.S. and China, alongside export restrictions preventing advanced AI chips and semiconductor manufacturing equipment from being sold to China.

Nvidia has reportedly instructed major server manufacturers like Super Micro Computer and Dell to look into potential indirect sales that may have occurred via clients in Southeast Asia. This investigation introduces another significant risk for Supermicro's future.

While no conclusive evidence has surfaced, rumors suggest that China may have accessed Nvidia's advanced processors through purchases of Supermicro servers. In addition, The Wall Street Journal reported earlier this month that the U.S. Department of Justice had begun probing Supermicro. Speculation points to potential accounting irregularities, with some investors speculating the investigation might relate to violations of export bans.

Supermicro has announced it will file its delayed 10-K report by February 25. Investors are keenly awaiting this report. If the company does not reveal major adjustments to its prior financial statements, its stock could rebound significantly. However, if the new auditor identifies substantial downward revisions to past reported results, the share price may suffer even more.

Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia.

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