We recently compiled a list titled Jim Cramer’s Latest Watchlist: 10 Stock Picks You Need to Know. In this article, we will look at where Super Micro Computer Inc. (NASDAQ:SMCI) stands among other stock picks in Jim Cramer’s latest watchlist.
In a recent episode of Mad Money, Jim Cramer advised investors to hold onto their stocks, anticipating a rebound after the market’s downturn. This advice proved useful as the Dow rose by 484 points or 1.16% and the NASDAQ also climbed by 1.16%, indicating that selling during the market decline was not the best choice.
“Last week, I advised you to hold off on selling everything and just wait, as I believed that once the pain ended, we would see a rebound. The average investor saw gains, with the Dow up 484 points, or 1.16%, and the NASDAQ also climbing 1.16%. While it might not be a full recovery, it shows that selling into Friday’s downturn wasn’t the best strategy.”
Jim Cramer noted that the previous week was tough for economically sensitive and tech stocks, despite a mixed August employment report. This report suggested a balanced economic outlook, not too strong or weak, which initially seemed favorable for those hoping for Federal Reserve rate cuts. Despite this, Wall Street reacted negatively, shifting away from cyclical stocks to more recession-proof sectors like consumer goods and pharmaceuticals, with industries such as industrials and semiconductors being particularly affected.
Cramer observed that recession-proof stocks, such as pharmaceuticals and medical devices, have performed well recently but have seen significant gains, raising concerns about a potential correction.
“Today, recession-proof stocks like pharmaceuticals, drug wholesalers, and medical devices continued to perform well, which is dangerous as these stocks have seen parabolic gains and could be due for a correction.”
He highlighted that historically, when the Federal Reserve is about to cut rates, it signals a shift in investment strategy. With the Fed expected to ease rates soon, Cramer suggests investors consider moving away from recession-proof stocks and look into more cyclical companies that could benefit from economic stimulus. While investing in cyclical stocks during a downturn is challenging, the anticipated rate cuts could make these stocks more attractive. Cramer advises maintaining diversification but being ready to adjust investment strategies based on the economic outlook.
“Historically, when the Fed is about to start cutting rates, we know that it’s time to shift focus. With the Fed leaning towards easing and an expected rate cut next week, it’s time to consider moving away from recession-proof stocks and investing in more cyclical companies. While it’s challenging to buy cyclical stocks during a slowdown, anticipating that the Fed will boost the economy can make them strong investment opportunities. It’s important to maintain diversification but be ready to adjust as needed.”
Our Methodology
This article reviews a recent episode of Jim Cramer’s Mad Money, where he talked about several stocks. From there, we picked ten companies and discussed how hedge funds are investing in them. Finally, we rank these companies from those least owned to those most owned by hedge funds.
At Insider Monkey we are obsessed with 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).
Super Micro Computer Inc. (NASDAQ:SMCI)
Number of Hedge Fund Investors: 47
Jim Cramer comments on the recent volatility of Super Micro Computer Inc. (NASDAQ:SMCI), a partner of NVIDIA Corporation (NASDAQ:NVDA). He notes that Super Micro Computer Inc. (NASDAQ:SMCI) dropped from $404 to $386 on Friday, impacted by a report from short-seller Hindenburg accusing the company of aggressive accounting practices. However, Super Micro Computer Inc. (NASDAQ:SMCI) rebounded to nearly $410 today. Cramer questions whether this rebound is significant or just a brief fluctuation, suggesting that the recent price movements might not provide clear insight into the company’s true performance.
“How about this absurdity: Super Micro, fell from $404 to $386 on Friday, still hobbled by a report from short-seller Hindenburg about the company’s aggressive accounting. Then today, Super Micro bounced back to almost $410 again. Either the climb was meaningless, or the rebound is meaningless, or both are meaningless. We don’t know.”
Super Micro Computer Inc. (NASDAQ:SMCI) is a strong investment option due to its significant growth in the AI and high-performance computing markets. Super Micro Computer Inc. (NASDAQ:SMCI) has excelled in AI server infrastructure, driven by a rise in demand for AI applications. For fiscal year 2024, Super Micro Computer Inc. (NASDAQ:SMCI) reported a remarkable 143% increase in revenue, reaching $5.31 billion. Although net income grew by 82%, profit margins have narrowed as Super Micro Computer Inc. (NASDAQ:SMCI) has focused on gaining market share through competitive pricing.
Looking forward, Super Micro Computer Inc. (NASDAQ:SMCI) expects revenue to double in fiscal 2025, forecasting between $26 billion and $30 billion. Analysts anticipate impressive growth rates for Super Micro Computer Inc. (NASDAQ:SMCI), with revenue and earnings per share expected to increase at annual rates of 58% and 52%, respectively, from 2023 to 2026. Super Micro Computer Inc. (NASDAQ:SMCI)’s expanding partnerships with Nvidia, AMD, and Intel strengthen its position in the rapidly growing AI market.
Additionally, the planned 10-for-1 stock split on October 1, 2024, could make Super Micro Computer Inc. (NASDAQ:SMCI) more appealing to investors by lowering its price per share. Despite facing competition from larger companies like Dell Technologies Inc. (NYSE:DELL) and Hewlett Packard Enterprise Company (NYSE:HPE) and dealing with margin pressures, Super Micro Computer Inc. (NASDAQ:SMCI)’s strong market presence and ambitious growth plans make it a promising long-term investment.
Polen U.S. Small Company Growth Strategy stated the following regarding Super Micro Computer, Inc. (NASDAQ:SMCI) in its Q2 2024 investor letter:
“The second largest contributor to the Portfolio’s relative performance was Super Micro Computer, Inc. (NASDAQ:SMCI), a provider of high- performance, energy-efficient servers, which the Portfolio does not own. The stock declined notably in the quarter, providing a tailwind to relative performance. On a YTD basis, however, Super Micro is still our largest relative detractor, given its robust 1Q return.”
Overall SMCI ranks 7th on our list. While we acknowledge the potential of SMCI, our conviction lies in the belief that under the radar AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than the ones on our list 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 was originally published on Insider Monkey.
