Ensuring Strength
In this edition of the Smart Investor newsletter, we examine the stock of one of the key players in the U.S. and global reinsurance industry. But first, let’s dive into the latest Portfolio news and updates.
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Portfolio Updates
❖ Arch Capital Group (ACGL) reported strong results for Q3, with revenue surging past analyst consensus and EPS coming slightly above estimates. The property and casualty insurer’s top line surged by 42% YoY, while net income was up by 37%. Despite facing a reduction in underwriting income due to higher loss ratios, primarily driven by catastrophic losses from hurricanes, ACGL showed resilience with a notable growth in gross premiums written and net premiums earned, as well as an increase in book value per common share.
Following the earnings release, Morgan Stanley and TD Cowen analysts raised their price targets for ACGL, driving the average upside seen by top Wall Street analysts in the next 12 months to 28%. At the same time, Wells Fargo slightly lowered the firm’s price target on Arch Capital but said that it views the recent sell-down as an attractive entry. According to the firm, despite the potential increase in insurance margin volatility due to the Allianz transaction and a strategic shift towards casualty insurance, ACGL should outperform given its reliable reserve management and financial strength. As a reminder, ACGL finalized its acquisition of Allianz’s U.S. MidCorp and Entertainment insurance businesses in August. The deal expands the firm’s casualty insurance offerings, aligning with its goal to broaden its product suite and distribution channels.
❖ Alphabet (GOOGL) saw its stock decline after the initial post-earnings jump as investors digested its AI-related capex. Despite reporting a 15% revenue increase and a 34% rise in net income, the stock’s performance was impacted by apprehensions regarding the sustainability of this growth. The tech giant’s net income would be significantly higher were it not for the quarter’s 62% surge in capital expenditures year-over-year. Moreover, GOOGL said these outlays are expected to come at a similar level in the ongoing quarter, with Alphabet’s total capex on track to rise ~60% in 2024 from the previous year.
Alphabet is already clocking in returns on its AI investments, which helped it become a cloud growth leader, as its Google Cloud revenue surged by 35% year-over-year, growing at a faster clip than its larger rivals, Amazon’s AWS and Microsoft’s Azure. The cloud growth was led by AI tools and solutions across the platform, underscoring GOOGL’s growing weight in the AI sphere. However, cutting-edge technology also presents growing challenges for the company, particularly for its Google Search. Thus, OpenAI has launched a new online search feature within ChatGPT, contesting Google’s near-total domination of the global search market. Google Search continued to register strong growth in Q3, with ChatGPT’s search features not expected to affect this growth in the next several quarters. However, given the rising competition among the AI majors, ChatGPT’s search added to investor concerns.
Still, analysts seem to be unphased by surging capex and ChatGPT’s advance, also disregarding the regulatory challenges casting a shadow over Alphabet’s share performance. Post earnings release, several leading Wall Street houses, including Bank of America Securities, Evercore ISI, JPMorgan, and others, raised their price targets on the stock, with the new average target implying an upside of 22% in the next 12 months.
❖ Microsoft (MSFT) reported an EPS and revenue beat for its fiscal Q1 2025, with the former surpassing consensus estimates by a wide margin. The third-largest S&P 500 member’s revenue grew by 16% year-on-year, while its earnings-per-share increased by over 10%. The notable outperformer among the giant’s divisions was its Microsoft Cloud, where the top line rose by 22%. Even more impressive was a 34% surge in Azure Cloud Services’ revenue.
Still, the company said Azure’s growth was in fact held back by capacity constraints and guided for slightly lower revenue growth in the ongoing quarter than analysts expected. Microsoft CEO Satya Nadella blamed the muted revenue guidance on outside supplier delays of data center infrastructure inputs, which continue to impact MSFT’s ability to meet demand.
The tech leader supported Alphabet’s claim that demand for AI services is far outstripping supply. Microsoft said that Azure’s growth should pick up speed in FH2 2025 as ongoing capital investments in expanding its AI infrastructure enable the company to increase its capacity for Azure. Microsoft’s AI investments continue to be in focus as it strives to meet accelerating demand in AI and cloud infrastructure. In FQ1, the company’s capex surged by 50% year-over-year. In addition, FQ1 figures reflect $108 billion in future finance lease obligations – mostly related to AI infrastructure leases – as its own data-center capacity at the moment cannot satisfy increasing AI workloads.
❖ Amazon (AMZN) saw its shares rise as the member of the “Magnificent” pack reported strong revenue and much higher-than-expected EPS, with various segments of the company’s business enjoying notable growth over the past year. Total revenues rose by 11% year-on-year, while EPS surged by 52%. However, management released a mixed outlook for Q4, guiding for lower revenue than analysts expected while projecting higher operating income.
Revenue at Amazon Web Services, AMZN’s cloud computing segment, rose by 19%, in line with expectations. The company’s capex surged by 81% year-over-year, reflecting its ongoing efforts to expand its data center infrastructure capacity to support its cloud services and AI initiatives. AMZN’s management echoed those of Microsoft and Alphabet, saying that AWS was also having difficulty meeting cloud computing demand. The company has announced plans to invest approximately $75 billion in capex for 2024, with expectations to exceed this amount in 2025. This significant investment is primarily aimed at expanding Amazon’s cloud computing infrastructure to meet the growing demand for AI services.
In other company news, Amazon’s agreement with Talen Energy was rejected by regulators. The Federal Energy Regulatory Commission turned down the proposed agreement between AMZN and the energy provider, which would help power the tech giant’s AI data centers with the help of Talen’s nearby nuclear plant. The denial of the deal put a major roadblock in front of Amazon’s and other hyperscalers’ plans to directly fuel the power-guzzling AI infrastructure with nuclear energy.
❖ Parker Hannifin (PH) reported in-line revenue results in its FQ1 2025, while the quarter’s EPS surged past analyst estimates. The company saw strong expansion in operating margins and notable growth in cash from operations. PH updated its fiscal 2025 guidance to reflect the anticipated divestitures in its Diversified Industrial Segment in North America, which are expected to be completed during FQ2. The updated guidance indicates a slight decrease in expected total sales growth but a modest increase in projected EPS.
❖ EMCOR Group (EME) reported record revenue and earnings growth in Q3. The mechanical and electrical construction services company’s revenues rose by over 15% year-on-year, while its EPS surged by 62.5%. EME’s remaining performance obligations reached a record, indicating a strong pipeline of upcoming revenue supporting robust growth in this and several upcoming quarters. The company significantly raised its full-year 2024 revenue and EPS guidance.
❖ Berkshire Hathaway (BRK.B) released underwhelming Q3 results, with revenues and EPS coming in below estimates. The company reported a decrease in after-tax operating earnings, mostly due to short-term currency mix headwinds, as well as a decline in insurance underwriting profits on the back of higher catastrophe losses and other temporary factors. However, Berkshire Hathaway’s net profits skyrocketed year-over-year reflecting large unrealized investment gains on its stock portfolio. Berkshire’s cash reserves swelled to a record $325 billion as the company sold nearly 25% of its holdings of Apple and Bank of America stocks during the quarter. At the same time, Warren Buffett’s financial conglomerate didn’t perform any buybacks in Q3, as the firm’s shares traded near a record high reached in early September.
❖ Diamondback (FANG) released mixed results for Q3, with revenues beating analysts’ estimates and EPS coming short. The EPS miss stemmed from lower oil prices during the quarter. However, the energy producer delivered oil volumes and total production above estimates in Q3, achieved largely by optimizing drilling and completion methods. The ability to meet and even exceed production targets without needing to expand resources is particularly valuable in the capital-intensive industry. Another positive factor is Diamondback’s early realization of operational synergies arising from its previous acquisitions. Additionally, the buyout of Endeavor Energy in September this year is expected to significantly boost FANG’s production capacity, as the merger has made it the third-largest oil and gas producer in the Permian Basin. Following the merger with Endeavor, Diamondback has revised its guidance for 2024, projecting higher oil production levels.
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Portfolio Stocks Under Review
❖ Adobe (ADBE) remains under review. The company’s stock has been under pressure after the release of its FQ3 2024 report on September 12th. Despite reporting strong FQ3 results that beat analyst expectations, ADBE provided weaker-than-expected guidance for FQ4 2024 (expected to be reported on December 11th). Investors were concerned about signs of decelerating growth at Adobe, including projected FQ4 growth of only 9% year-over-year, which would be its lowest growth rate in nearly a decade. There were also worries about Adobe’s competitiveness in the rapidly evolving AI-powered software market. While Adobe remains a leader in its field with strong financials, these factors combined to create uncertainty about its near-term growth prospects, leading to declines in recent months.
However, the company’s annual Adobe Max conference on October 14th was rife with exciting news, which created some tailwinds for the stock. ADBE made several major announcements, highlighting significant advancements across Adobe’s Creative Cloud suite, including the launch of over a hundred new features. Putting a strong emphasis on AI-powered products, the company unveiled new AI-enhanced tools in Illustrator and InDesign, updates to the Substance 3D content creation tool, and a beta version of a new web-based app for in-browser creation and editing of 3D content.
In addition, Adobe introduced significant updates enabled by its highly successful AI model, Adobe Firefly, which has already gained widespread adoption. The most notable development was the launch of Firefly Video, a new AI video-generation tool, which confirmed Adobe’s capability to pose strong competition to OpenAI’s Sora, as well as generative tools offered by Meta Platforms, TikTok, Alphabet, and other current or potential rivals.
Adobe’s generative video AI is differentiated by its integration into its creative tool suite, as well as by its focus on commercial safety (i.e., its models are trained on data to which ADBE has commercial rights). The integration is expected to enhance user retention and platform consolidation, increasing product stickiness and revenue growth. This approach is viewed by analysts as a path to fortify ADBE’s market position while streamlining its AI monetization process.
Most leading Wall Street brokerages were positive on the stock before the announcement, with several analysts positively opining on ADBE’s prospects after the details on the new tools were released. Thus, according to Goldman Sachs, the launch of Firefly Video underscores Adobe’s competitive edge in various creative domains, with AI technology expected to support its growth trajectory. Bank of America Securities added that Generative AI tools will be a meaningful component to Adobe’s growth. The average analyst price target for ADBE implies a potential upside of over 27% in the next 12 months.
While the recent developments around GenAI tools are positive for Adobe, we remain watchful as to whether they will provide a sufficient catalyst to break the negative sentiment cycle and propel ADBE toward future gains.
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❖ Applied Materials (AMAT) remains under review. As a reminder, we placed AMAT in this bracket following its weak stock performance.
Applied Materials continues to perform well fundamentally, as seen in its solid revenue and earnings reports, and most of its recent stock underperformance can be attributed to semiconductor sector cyclicality, discussions about new U.S. regulations on chip exports to specific countries, and other external factors. The company’s shares have generally followed the market trends for the wider semiconductor sector but opened a down gap versus iShares Semiconductor ETF in mid-October.
That gap was the result of one company-specific factor weighing down the stock: exposure to the Chinese market. Applied Materials has reduced its exposure to China, with sales in China dropping from 43% of total sales in FQ2 to 32% in FQ3. This reduction was part of a strategic decision to mitigate risks associated with the geopolitical tensions and trade restrictions involving China. However, the shift had a mixed impact, as the Chinese market was a major source of revenue for the company. While AMAT’s long-term prospects are bright, it remains to be seen whether AI-related revenue can replace the lost Chinese sales in the short term.
However, there have been some positive developments related to AMAT’s exposure to Chinese suppliers. According to the WSJ report, Applied and other U.S. semiconductor producers are taking proactive steps to reduce their reliance on China-made inputs as they expect the technology trade restrictions to accelerate. The leading U.S. chip toolmakers, including AMAT, are reportedly instructing their suppliers to phase out Chinese components. These companies are making it clear to their suppliers that continuing to use Chinese parts could jeopardize their vendor status.
While AMAT’s shares rebounded in the past weeks, it remains to be seen how it proceeds in terms of its exposure to China. We are planning to wait for the company’s FQ4 earnings release, scheduled for November 14th, to decide whether to retain the stock in the Portfolio.
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Portfolio Earnings and Dividend Calendar
❖ The Q3 2024 earnings season is beginning to wind down, but several Smart Portfolio holdings are still scheduled to release their quarterly results in the next few days. The reporting Portfolio companies are Howmet Aerospace (HWM), Texas Pacific Land (TPL), and Arista Networks (ANET).
❖ The ex-dividend date for Parker Hannifin (PH) and Howmet Aerospace (HWM) is November 8th.
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New Buy: Reinsurance Group of America (RGA)
Reinsurance Group of America, Inc. engages in the provision of traditional and non-traditional life and health reinsurance products. RGA’s services include underwriting expertise, risk assessment, and specialized solutions tailored to life and health insurance markets.
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History of Healthy Reassurance
Reinsurance Group of America was established in 1973 as the life reinsurance division of General American Life Insurance Company. In 1993, RGA became an independent entity through an initial public offering on the New York Stock Exchange.
The company expanded internationally, opening offices in Spain (1994), Australia (1996), Malaysia (1997), among others. In 1999, MetLife acquired a majority stake in RGA, which it retained until 2008 when RGA became fully independent again. Over the years, RGA has grown into a leading global provider of life and health reinsurance solutions.
RGA’s offerings have evolved to include a broad range of reinsurance products and services, such as life reinsurance, living benefits reinsurance, group reinsurance, health reinsurance, financial solutions, facultative underwriting, and product development.
The company has experienced significant growth and expansion since its inception in 1973 through a combination of strategic acquisitions and intrinsic efforts. It has made several strategic M&A transactions, which have allowed RGA to strengthen its market position and expand its service offerings in the life and health reinsurance sectors.
While the company has conducted some strategic acquisitions, they were relatively limited, as it focused on organic growth strategies. In 2022, RGA launched a five-year enterprise growth strategy centered on delivering meaningful, long-term value to stakeholders. This strategy emphasizes product development, innovation, and new reinsurance structures to open or expand markets. Additionally, RGA prioritizes high-growth opportunities that align with its risk appetites and competitive differentiators.
Today, with a market cap of over $14 billion and annual revenues of $18.6 billion, RGA is one of the largest reinsurance companies globally, ranking #223 on the Fortune 500 list.
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Robust Financials and Ample Cash
Reinsurance Group’s financial health is more than stellar, which is reflected in its high credit ratings: “A-” at Fitch, “A1” at Moody’s, “AA-” at S&P, and “A+” at A.M. Best. Particularly, Fitch considers RGA’s business profile to be favorable compared with all other reinsurance organizations globally as the firm maintains a leading position in the U.S. and Canadian markets and “ranks among the top five global life and health reinsurance companies.” In addition, Fitch praised RGA’s strong capitalization and moderate leverage.
Reinsurance Group of America maintains stable debt levels, while ample cash and cash equivalents on its balance sheet give it a negative net debt-to-equity ratio (i.e., it has more cash than debt). This positions RGA favorably in terms of financial stability, indicating potentially greater resilience against industry, market, or economic volatility. At the end of Q3 2024, the company reported cash and cash equivalents totaling $2.5 billion, providing a solid buffer to meet short-term obligations. RGA also showcased a diversified investment portfolio valued at $60 billion, contributing to overall liquidity and financial stability.
It is difficult to compare RGA’s capital efficiency metrics to other industry players due to its exclusive focus on life and health reinsurance. However, its adjusted operating ROE and ROIC have both increased in recent years and are now in line with the average for the U.S. Insurance industry. Meanwhile, its ROA is generally lower than the average due to the nature of its business and investment practices, as well as its substantial capital requirements. It must be noted that these comparisons can vary depending on the specific segment focus, as life and health reinsurance can yield different results than P&C-focused firms.
Reinsurance Group’s metrics also reflect efficient management, with operating expenses remaining stable through the years. Its reported operating expense ratio of 5.2% indicates effective cost control relative to revenue generation. In addition, RGA’s gross and operating margins are comparable to those of segments related to life and health insurance at its larger and more diversified peers Munich Re and Swiss Re, reflecting efficient operations within the life and health reinsurance sector. The company’s net profit margin is slightly lower than average for its industry peers, which may be attributed to differences in business mix and expense structures. At the same time, RGA’s FCF margin is notably high, indicating strong cash generation capabilities.
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Strong Business and Premium Growth
RGA differs from most other reinsurers in that it only handles life and health risks. Thus, its portfolio is devoid of risks associated with natural catastrophes and other property and casualty claims, liability claims, vehicle and maritime theft and/or accidents, etc. The focus on life and health enables RGA to concentrate on mortality, morbidity, and longevity risks, which tend to be more predictable and less susceptible to sudden, catastrophic events.
Reinsurance Group generates revenue primarily through three channels: premiums from reinsurance contracts, investment income, and fees from financial solutions. By diversifying its revenue sources across these areas, RGA maintains financial stability and supports its growth objectives.
As a reinsurance firm, RGA earns premiums by providing reinsurance coverage to insurance companies, assuming a portion of their risk in exchange for premium payments. Part of these premiums is transferred to other reinsurers to manage RGA’s own risk exposure. The resulting net premiums accounted for 81% of the firm’s total revenues in 2023.
RGA invests the premiums it receives into various financial instruments, generating income from interest, dividends, and capital gains. In 2023, the proceeds from these investments represented about 16% of its revenue. In addition, the company offers specialized financial solutions to insurance companies, earning fees through services that enhance clients’ financial stability and operational efficiency. Thus, RGA assists insurers in managing asset-related risks associated with products like annuities and interest-sensitive life insurance. RGA also provides reinsurance arrangements that help insurers manage regulatory capital requirements, improve solvency positions, and optimize capital efficiency. These services were responsible for about 3% of total annual revenues.
Each of Reinsurance Group’s business segments has registered consistent, healthy growth in the past several years. Most importantly, its net premiums have grown at a CAGR of 9.5% over the past three years, notably higher than that seen by its peers. Other leading global reinsurers have reported much more modest premium growth rates in recent years.
Moreover, Reinsurance Group of America reported a 31% year-over-year increase in consolidated net premiums for the third quarter of 2023, considerably higher than the premium growth reported by other leading reinsurers. Thus, just as Munich Re reported a decline in net premiums in the same period, Swiss Re saw growth of under 6% year-on-year, and Everest Re reported a 23% increase in gross premiums, without disclosing the net figures.
The company’s overall revenues rose by 15% year-on-year in Q3 2024, driven by a significant rise in net premiums and a substantial increase in investment income. However, its headline EPS fell by 35% year-on-year due to an increase in the policy retention limit. The increase led to an immediate one-time cost of $168 million to account for the increased risk exposure but is expected to add over $1.5 billion in premiums over the long term. This adjustment reflects a strategic choice to retain more risk for future earnings potential, impacting short-term profits in exchange for long-term gain. Without the impact of this change, Q3 EPS would have grown by about 10% year-on-year.
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Total Return In Focus
RGA’s stock returned over 38% over the past 12 months, outperforming both the S&P 500 index and iShares U.S. Insurance ETF. Despite the strong performance, its shares are fairly valued, with the Non-GAAP current and forward PE ratios standing below Financial sector averages.
Although RGA trades at a premium to the U.S. Insurance industry average, its valuations are now below its historical averages, with a particular discount seen in its forward PE. This is the result of analysts’ expectations of higher earnings in the coming year compared to the past year. Moreover, based on projected cash flows, the company trades about 60% below its fair value.
Analysts from top Wall Street brokerages pencil in an average upside of ~14% for the stock in the next 12 months. In fact, analysts from J.P. Morgan, Wells Fargo, Raymond James, and other prominent firms have increased their price targets on the stock over the last month.
In addition to the potential for stock-price appreciation, Reinsurance Group of America is a dividend-paying company. While its dividend yield of 1.64% is lower than average for Financial sector firms, RGA’s very low payout ratios and a 15-year track record of consistent annual dividend increases support the outlook for further payout growth.
On top of that, RGA performs strategic stock buybacks. In 2023, the company repurchased $200 million worth of shares. In January, the company’s board authorized a share repurchase program for up to $500 million of its outstanding common stock, effective immediately and without an expiration date, allowing the company to repurchase shares at its discretion. However, no significant repurchases have been performed under the 2024 program, given current share price levels and strategic allocation priorities.
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Investing Takeaway
Reinsurance Group of America, Inc. is a leading provider of life and health reinsurance that has grown to prominence through strategic expansions and robust product offerings. The company’s disciplined operations and solid financial health, underscored by high credit ratings and a strong cash position, reinforce its resilience. RGA’s diversified revenue streams—from reinsurance premiums to investment income—drive consistent growth, with strong capital returns. Supported by a steady dividend track record and share repurchase program, RGA presents a stable, growth-oriented opportunity within the reinsurance industry. As such, we view it as a valuable addition to the Smart Investor Portfolio.
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New Sell: Super Micro Computer (SMCI)
Super Micro was placed in our “Under Review” bracket after a report by a short-seller Hindenburg Research, published in August, accused SMCI of accounting manipulation, undisclosed related-party transactions, and export control violations. Following these allegations, SMCI delayed filing its annual report, citing the need to assess its internal controls over financial reporting. According to media reports, the U.S. Department of Justice initiated an investigation into SMCI’s practices. The company dismissed the accusations and installed an internal Audit Committee to review its own numbers, though claiming that it is not expected to lead to major changes in the previously reported results.
Despite the notable delays in filing with the SEC, SMCI saw a significant rebound in investor sentiment in recent weeks thanks to its operational achievements. Thus, the company released a new liquid cooling solution for data centers, strengthening its command of the rapidly growing direct liquid cooling market. In addition, Super Micro disclosed shipments of more than 100,000 GPUs with its liquid cooling solution system, underscoring surging demand for its servers. Moreover, SMCI launched a new optimized storage system for high-performance AI workloads and announced a line of new liquid-cooled AI servers powered by Nvidia’s Blackwell line of processors.
These operational highlights were the reason for our decision to adopt the “wait and see” approach towards the stock despite the lack of clear communication from the management regarding the speculations about the company’s accounting practices. However, a few hours after last week’s Newsletter was sent, we received news that left us no choice but to sell Super Micro Computer, as these speculations now appear based on solid facts. These are grave developments that neither we nor Wall Street analysts could have foreseen.
One of the “Big Four” global accounting firms, Ernst & Young (EY), resigned from its role as SMCI’s auditor. According to a filing with the SEC last Wednesday, EY resigned “due to information that has recently come to our attention which has led us to no longer be able to rely on management’s and the Audit Committee’s representations.” Super Micro said it disagreed with EY’s decision, which came during an independent review of its internal controls and governance by a law firm and a forensic accounting firm and added that it is “working diligently to select new auditors.”
Before engaging Ernst & Young in mid-2023, Super Micro Computer was audited by Deloitte for approximately 20 years. Deloitte provided a clean bill of health for the firm in its last published annual report in August 2023. However, the firm’s break up with EY has led investors to lose all trust in the company’s reported financials and guidance, with many analysts calling on SMCI’s CEO and CFO to resign.
EY said in the resignation letter that it was “unwilling to be associated with the financial statements prepared by management,” which was interpreted by analysts as a sign of deep mistrust in Super Micro’s management, adding significant weight to Hindenburg’s allegations of accounting manipulations. Although it is not uncommon for an auditor to quit, a so-called “noisy resignation” – the one that includes strong words about distrust in the management – is extremely rare for both “Big Four” auditors and the S&P 500 members.
Besides the significant drop in the company’s share price, which wiped out its year-to-date gains, SMCI faces additional headwinds. Thus, after delaying its 10-K for its fiscal that year ended June 30th, Super Micro must either file with the SEC or submit a working plan to regain compliance with stock-listing rules. If the company fails to do that by November 16th, it risks being delisted from the Nasdaq Stock Exchange. Given the absence of an auditor and the tight timeline to reach compliance, the odds of delisting are high. Nasdaq delisting would with high probability lead to the company being removed from the S&P 500 index, as well.
On top of all that, many of SMCI’s customers and partners are worried about the firm’s issues. If the company loses customers due to accounting concerns, it could strongly impact Super Micro’s revenues. Most importantly, according to media reports, Nvidia has begun diverting orders away from Super Micro, reshaping its supply chain.
The AI hardware sphere is an interconnected web, within which SMCI is Nvidia’s biggest client and, simultaneously, third-largest supplier. In addition, Super Micro’s second-largest customer after Nvidia is a cloud service provider CoreWeave, which is financially backed by the AI leader. Nvidia is now allegedly redirecting its server and other orders to Dell (DELL), a Smart Portfolio holding, as well as to Hewlett Packard Enterprise and several smaller producers, including Taiwan-based Gigabyte. If these reports are true, Super Micro faces significant revenue shortfalls in the coming quarters.
Super Micro was scheduled to report its FQ1 results on Tuesday after hours. However, following the abrupt walkout of EY, the company released an unaudited “business update” with preliminary financial information for FQ1 as well as an FQ2 guidance. SMCI provided FQ2 revenue and EPS forecast significantly below analyst estimates. For the past quarter, the company revenue estimates are considerably below the midpoint of the previously provided range, while its EPS estimate comes slightly above analyst expectations. However, given the lack of financial credibility, unaudited FQ1 results are nearly meaningless. Meanwhile, analysts and investors would need a new auditor’s assurance that SMCI can achieve its sales guidance even after the guidance reduction. In addition, the company said it still couldn’t predict when it would file official financial statements for its previous fiscal year, further harming investor sentiment.
Thus, despite Super Micro’s operational prowess in AI hardware and the large share it holds in the liquid cooling server market, the risks associated with holding the stock now far outweigh the opportunities.
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Smart Investor’s Winners Club
The 30% Winners Club includes stocks from the Smart Investor Portfolio that have risen at least 30% since their purchase dates.
Following the downfall of SMCI that led to its exclusion from the Portfolio, our exclusive club now counts 15 members: GE, AVGO, ANET, EME, TPL, ORCL, TSM, PH, APH, HWM, ITT, GD, PNR, AMAT, and CHKP.
The next in line to join the lucrative club is still IBKR with a 29.37% gain since purchase. Will it close this minute gap, or will another stock outrun it to the finish line?
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Disclaimer
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