SMCI Crashed 33% — Here's Why I'm Still Holding
SMCI Crashed 33% — Here's Why I'm Still Holding
Super Micro Computer (SMCI) plunged 33% last Friday. Two employees were indicted for illegally smuggling Nvidia chips to China.
I won't sugarcoat it — this one stung. Delisting fears, accounting issues, and now illegal exports. Management keeps dropping the ball.
What Happened
The U.S. Attorney's Office in New York unsealed an indictment charging Wally Liao, SMCI's co-founder and Senior VP of Development, and Steven Chang, a sales manager, with illegally exporting billions of dollars in Nvidia chips to China.
Liao is also a board member holding $464 million worth of SMCI stock.
The scheme was sophisticated: a middleman company in Southeast Asia fabricated paperwork, a separate logistics firm repackaged servers to conceal their destination, dummy servers and storage facilities were set up, and the compliance team was pressured into approving shipments.
CEO Charles Liang Doesn't Get a Pass
The indictment doesn't implicate other management directly, and SMCI itself wasn't named as a defendant. The company issued a statement, fired the employees, and has cooperated with the investigation.
But this is still a terrible look for the C-suite. Stronger export controls could have caught this much sooner. And the government could still decide to fine SMCI separately.
So Why Not Sell?
SMCI being a roller coaster is old news at this point. I've been buying since shares hit $18 in late 2024 during the delisting scare, and have recommended it broadly in the $30–$40 range.
Management has no excuse for repeated failures. But the fundamentals speak for themselves:
- 88% revenue growth: projected to hit $41.5 billion this year
- Up to 33% AI server market share: still the top server maker in the industry
- Q2 revenue up 123%: $12.7 billion, the largest beat in three years
- EPS growth of 8%: expected at $2.25 per share
With AI infrastructure spending potentially reaching $1 trillion this year, SMCI's position in this market is impossible to ignore.
DCBS Could Be the Profitability Catalyst
Beyond management risk, the biggest drag on SMCI shares has been profitability — gross margins dropped 5.5 percentage points over the past year.
But the Data Center Building Block Solutions (DCBS) program could change that trajectory. It's a one-stop concierge service for building and deploying AI infrastructure, with higher margins than standalone server sales.
Management guided DCBS to reach double-digit profit contribution by the end of this fiscal year (June). Last quarter, it was just 4% — so a significant ramp is expected within six months.
Additionally, the February partnership with Fast Data launched the CnodeX solution — an integrated, rapidly deployable AI data platform that's also a higher-margin product.
Valuation: The Cheapest It's Ever Been
At Friday's close of $20.53 per share and a market cap of $12.3 billion:
| Metric | Current | 5-Year Avg | Discount |
|---|---|---|---|
| P/S Ratio | 0.3x | 0.94x | -68% |
| P/E Ratio | 9x | 18x | -50% |
Even during the 2019 delisting scare, shares traded at 0.37x sales and 15.7x earnings. Today is cheaper than that.
A company growing revenue at 88% annually with credible reasons to improve profitability, trading at a 70% discount to its average multiples. I'd love to see a private equity firm or activist investor step in and force management to clean up their act. Until that happens, this valuation and growth trajectory are too compelling to walk away from.
What to Watch
This isn't a comfortable hold. Volatility will persist. But for patient investors, this could be a very profitable position. The bottom line: management risk is real, but the valuation is already pricing in more than enough of it.
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