We recently compiled a list of the 7 Best High Short Interest Stocks To Invest In. In this article, we are going to take a look at where Super Micro Computer Inc. (NASDAQ:SMCI) stands against the other high short interest stocks.
What’s Going On in China?
China’s housing market, once a booming sector, has experienced a significant downturn in recent years. To revitalize the market, the government recently implemented a series of policy changes aimed at stimulating demand. These changes include easing home-buying restrictions in major cities like Guangzhou, Shenzhen, and Shanghai.
The relaxation of these restrictions has had a positive impact on the stock market. Investors, encouraged by the government’s efforts, have been pouring money into Chinese stocks, particularly those related to the real estate sector. This surge in investment has led to a significant increase in stock prices. The CSI 300 index saw its most significant weekly gain since 2008, rising over 15% in late September 2024
While all of this activity has had a positive short-term impact, economists believe that more measures are needed to address China’s weak domestic demand. The housing market is still grappling with concerns about developer solvency and the overall economic outlook. The government’s efforts to address these issues will be crucial for the long-term recovery of the housing market and the broader economy.
On September 27, Jeremy Siegel, Wharton School professor of finance, joined CNBC’s ‘Squawk on the Street’ to discuss how much of a game changer recent news from China is. He shared his insights on the potential implications of global market changes, particularly in light of discussions surrounding Japan and China.
Siegel agreed with hedge fund manager David Tepper’s views but noted a divergence regarding Japan’s long-term appreciation and its effects on exports and interest rates. He highlighted that, despite concerns, the recent performance of the Japanese yen and Nikkei, showing gains of 2% each, indicates that there may still be opportunities to capitalize on these markets.
He emphasized the positive developments in China, suggesting that buying into a market with a price-to-earnings ratio of around 10 can be advantageous, especially considering the current P/E ratio for China is approximately 12 to 13. He pointed out that this valuation is relatively low compared to other markets, with Brazil being one of the few markets with an even lower ratio. Siegel referenced Warren Buffett’s concept of “margin of safety” when investing in low P/E markets, reinforcing his belief in the potential for gains in China despite some bearish sentiments.
When asked about the US market, Siegel indicated that it appears full at present. He praised the Fed’s new trajectory and suggested that if they implement a quarter-point rate increase at each meeting, they could reach a target rate of around 3.5% by mid-2025. He argued that current inflation data supports this approach, although he expressed skepticism about reaching the Fed’s dot plot target of 2.9% without a recession.
Siegel believes that while inflation remains a concern, the Fed does not need to take drastic measures such as a 50 basis point hike. Instead, he advocates for a more gradual approach to rate increases, which would help stabilize the economy without causing significant harm. He noted that if the market anticipates these adjustments, the outlook for the remainder of the year could improve.
Overall, his analysis suggests that while opportunities exist in international markets like Japan and China, investors should remain cautious about US equities due to their current valuations. His perspective encourages a balanced approach to investing in various global markets while keeping an eye on macroeconomic indicators and central bank policies.
China’s recent stimulus measures have encouraged renewed investor interest in Chinese stocks. Short-term traders have been consistently purchasing stocks, and hedge funds have increased their allocations to Chinese equities. While the stimulus is positive, underlying economic challenges could affect investment strategies, including short-selling.
Methodology
To compile our list, we used the Finviz stock screener to find companies with a short interest between 10% and 25%. We then selected 10 stocks that were the most shorted but at the same time popular among elite hedge funds and that analysts were bullish on. The hedge fund data was sourced from Insider Monkey’s database which tracks the moves of over 900 elite money managers. The stocks are ranked in ascending order of their short interest.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A team of technicians in a server room, testing and managing the newest server solutions.
Super Micro Computer Inc. (NASDAQ:SMCI)
Short % of Float As of September 13: 19.52%
Market Capitalization as of September 30: $24.58 billion
Number of Hedge Fund Holders: 47
Super Micro Computer Inc. (NASDAQ:SMCI) is a leading provider of high-performance computing and storage solutions that designs and manufactures a range of server systems, workstations, and storage products, catering to various industries including cloud computing, data centers, and enterprise applications. It is known for its innovative technology, energy efficiency, and customization capabilities.
The company operates in over 100 countries and has experienced significant growth in recent years, driven by its expansion in Asia and focus on value-added AI solutions. Its innovative products, including liquid cooling clusters and next-generation X14 and H14 systems, have been crucial in supporting the growth of AI. The company’s revenue and profitability have significantly increased over the past three years, largely driven by the rising demand for AI solutions.
It grew its revenue by 142.95% in FQ4 2024 as compared to the year-ago period, amounting to a total revenue of $5.31 billion. The revenue for the fiscal year 2024 reached $14.94 billion, a remarkable 110% increase year-over-year. The earnings per share for the fourth fiscal quarter were $6.25, missing Street estimates by $1.89. Management has speeded up its production and is now producing 5,000 racks and over 2,000 direct liquid cooling racks per month.
It recently introduced new servers powered by Intel’s Xeon processors. These servers feature advanced architectures, including 10U and multi-node form factors, to support next-generation GPUs and higher CPU core densities. The servers also offer improved memory configurations and liquid cooling solutions, enabling the company to provide customized solutions for its customers.
Despite recent challenges, the company remains a promising investment opportunity. Its strong fundamentals, innovative solutions, and growth potential in the AI server market position it for long-term success.
Carillon Scout Mid Cap Fund stated the following regarding Super Micro Computer, Inc. (NASDAQ:SMCI) in its Q2 2024 investor letter:
“Super Micro Computer, Inc. (NASDAQ:SMCI) was the top detractor to returns in the second quarter. Super Micro designs and manufacturers server solutions based on modular and open-standard architecture. This modular approach combined with a strong engineering culture helps the company to supply the market with advanced servers and rack-scale compute solutions quickly. After an impressive return in the first quarter, the company offered disappointing near-term earnings guidance, though we do not believe its long-term opportunity has diminished. We expect continued strong growth for several years, although the range of outcomes is quite wide; it is difficult to forecast AI server market growth with precision.”
Overall SMCI ranks 1st on our list of the best high short interest stocks to invest in. While we acknowledge the potential of SMCI as an investment, our conviction lies in the belief that AI stocks hold great promise for delivering high returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than SMCI but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.