Super Micro Computer’s stock has experienced one of the biggest declines in recent days among companies linked to the artificial intelligence boom. At first glance, however, there was no indication that the market would react negatively.
The company announced a record $39 billion in orders for AI servers and remains one of Nvidia’s $NVDA most important partners in the data center sector. However, it wasn’t demand that worried investors. The company announced a plan to raise up to $7 billion through new shares and convertible securities, which sparked concerns about significant dilution for existing shareholders. As a result, the stock lost nearly 8% in a single day and is falling another 8.6% today before the market opens.
Record Demand for AI Servers
Over the past two years, Super Micro has become one of the major winners of the AI revolution. The company supplies complete server solutions equipped with state-of-the-art chips from NVIDIA, which are used by data centers, cloud companies, and artificial intelligence providers.
The latest announcement revealed that the company currently has orders totaling approximately $39 billion from more than twenty customers. This backlog represents one of the largest order backlogs in the company’s history and confirms that demand for AI infrastructure remains exceptionally strong.
Why are the shares falling?
It is precisely this enormous growth that is creating a new problem for the company. The company needs a massive amount of capital to purchase components, processors, memory, and graphics accelerators even before customers take delivery of the final systems.
Management has therefore announced a comprehensive financing plan totaling up to $7 billion. The package includes:
the issuance of new common stock worth $1.25 billion,
the issuance of $3.75 billion in convertible preferred stock,
a program for the gradual sale of shares worth up to $2 billion.
It is precisely these new shares that pose a problem for investors. If the company issues more shares, current shareholders will own a smaller share of the company’s future profits. This process is known as shareholder dilution, and the market typically reacts negatively to it.
Negative cash flow reveals the other side of the AI boom
Although revenue is growing at a record pace, Super Micro burned through approximately $6.8 billion in free cash flow last year. The reason is not operational problems, but rather the speed of growth.
The company must pre-finance production and purchase expensive components in large volumes. The faster the number of orders grows, the greater the pressure on working capital.
This problem is not unique to Super Micro. Other companies tied to AI infrastructure are experiencing similar pressure as they strive to keep up with record demand for computing power.
Margins remain a sensitive issue
Historically, Super Micro has operated with significantly lower margins than, for example, Nvidia. While Nvidia sells high-end chips with a gross margin exceeding 70%, Super Micro primarily acts as a server solutions integrator.
In recent quarters, the company’s gross margin has been under pressure due to high component prices and an aggressive competitive environment. Although it has recently improved from approximately 6% to nearly 10%, analysts are still debating whether this trend is sustainable in the long term.
Competition and Market Position
AI infrastructure is not just a Super Micro story today. Companies such as Dell Technologies $DELL and Hewlett Packard Enterprise $HPE are also growing significantly.
Dell has reported record AI server orders in recent quarters, and its backlog has surpassed historical highs. HPE, in turn, is benefiting from growing demand for enterprise data center solutions.
Investors are therefore increasingly comparing whether Super Micro’s valuation is more attractive than that of its competitors, given its margins and financing risks.
According to the fair price on Bulios, $SMCI shares remain overvalued even after yesterday’s drop. However, if the market opens today with a loss of over 8%, as it currently appears in the pre-market phase, the current price could come significantly closer to that fair value.
Strategic Perspective
The current stock decline does not mean the company is falling apart.
The company still has a record order backlog, operates in one of the fastest-growing segments of the technology market, and benefits from the ongoing expansion of AI data centers.
However, the market is now grappling with the question of whether growth will justify the costs associated with it. Investors today are not only evaluating the number of orders but also the company’s ability to finance expansion without significantly harming existing shareholders.
What to watch next
the development of gross margins,
the pace at which the backlog is converted into actual revenue,
the impact of the planned stock offering,
cash flow trends,
new orders related to the Nvidia Blackwell and Vera Rubin platforms.
Overall sentiment surrounding AI infrastructure will also be a key factor. The recent sell-off in tech stocks has shown that investors are increasingly sensitive to valuations and the capital needs of companies operating in this sector.
Super Micro $SMCI remains one of the most prominent players in AI infrastructure, and its record $39 billion backlog confirms that demand for its servers is not waning. However, the current stock decline is reminding markets that rapid growth isn’t always automatically good news for shareholders.
Wall Street is now primarily focused on the cost of this growth. If the company manages to convert its record orders into profitable growth while stabilizing cash flow, the current decline may prove to be temporary. However, if the need for additional capital continues to grow, stock volatility may persist in the coming quarters.