Super Micro Computer Inc Shares Take A Breather – AI Fatigue Or Normal Service?

The shares of Super Micro Computer Inc (NASDAQ: SMCI) have taken a 15.94% hit in the last month, marking a stark transition from the earlier trend seen through Q1. Does the downturn do anything to deter long-term SMCI shareholders, or is this just the normal ebbs and flows of the market at work?

The erosion in SMCI's share valuation is not an isolated incident; rather, it parallels the broader American equities downturn, evidenced by the significant retreats of the Nasdaq 100 and the Dow Jones Industrial Average from their respective peaks by 0.7% and 2.4% in the last 5 days. Those who have witnessed SMCI's valuation decline, do so amid fluctuations in the wider technology sector, where the market-wide pullback has been particularly pronounced. Growth stocks are an area that do well when markets are bullish, but the sniff of uncertainty can send traders behind the couch.

Super Micro Computer's tribulations could be part of a sector-wide phenomenon known as AI fatigue, which has similarly ensnared comparable firms such as C3.ai (NYSE: AI) down 12.04%, and SoundHound AI (NASDAQ: SOUN) down 15.53%. Nvidia (NASDAQ: NVDA) down 0.57%,and AMD (NASDAQ:AMD) down 2.87% all in the last 5 days are more established as businesses in the space, and are less prone to some of these factors.

Compounding the volatile market sentiment is the looming spectre of adjusted interest rate expectations from the Federal Reserve as it grapples with persistently high inflation rates. The prospect of uncertainty in monetary policy poses a formidable headwind for growth-oriented companies such as Super Micro Computer, which are acutely sensitive to changes in the interest rate landscape.

Looking at the upside expectations, analysts have continued to revise forecasts and price targets upwards, with the recent upgrade from Northland pushing price targets up to $1300 (from $925), as JP Morgan initiated coverage at $1150. Both these marks represent huge upside potential from the current SMCI share price (a shade under $900), and put into perspective some of the recent pullback.

Those expecting similar results to the first quarter of the year, when SuperMicro shares were on a tear, ripping up markets with a tripling in value over 6 weeks, might be disappointing with this pullback in price. The reality is, that every company when it is going through growth of this nature is likely to hit points where it is very healthy for the stock to take ‘a breather', find new levels of support, and prepare to go again when conditions prevail.

More than 200% year to date returns even after the pullback is more than adequate performance, and the recent funding achieved by SuperMicro may well improve the longer term outlook.

Everyone will be watching the wires for the next earnings, or catalyst that may just dictate the direction through the remainder of the year.