We recently compiled a list of the Jim Cramer’s List of Stocks that Finished Dead Last. In this article, we are going to take a look at where Super Micro Computer, Inc. (NASDAQ:SMCI) stands against the other Jim Cramer stocks that finished dead last.
In a recent episode of Mad Money, Jim Cramer examined market trends of the third quarter. He first discussed that while high interest rates and a cash-strapped consumer typically signal good fortune for dollar stores, this time was different.
Dollar stores are grappling with substantial challenges, primarily stemming from inflation. Cramer emphasized that rising prices have made it increasingly difficult for these retailers to maintain their signature one-dollar pricing model.
Moreover, he explained that historically, dollar stores are expected to decline when the economy improves, and that happens when the Federal Reserve begins to cut interest rates. However, a more pressing issue is that dollar stores are now facing more savvy consumers who have discovered better deals at larger retailers.
Cramer went on to discuss the necessity for the stock market to be driven by new companies, rather than relying on established leaders primarily associated with artificial intelligence, which are now experiencing diminished momentum. He said:
“You want to find a bunch of former market darlings? I want you to take a look at the bottom of the S&P 500 for this quarter.”
He remarked on the irony of the situation, suggesting that investors have spent considerable time believing that simply investing in anything linked to AI would guarantee success. He pointed out that recent market activity has shown that backing the wrong AI-related stock could lead to significant losses.
He cautioned that the days of going on autopilot with the Magnificent Seven are over. Those stocks had remarkable runs earlier in the year, but Cramer insisted that it is now essential to welcome new players into the market to reach new highs.
Lastly, he added:
“One thing’s certain, Wall Street, the complex of analysts, money managers, corporate finance traders, they missed out big this quarter, didn’t they? They still act like the new losers will be winners soon enough while the new winners are all one-hit wonders. I say, dream on. This move could be here to stay.”
Our Methodology
For this article, we compiled a list of 5 large stocks that underperformed during the third quarter and were mentioned by Jim Cramer during his episode of Mad Money on October 1. We listed the stocks in descending order of their hedge fund sentiment as of the second quarter, which was taken from Insider Monkey’s database of more than 900 hedge funds.
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)
Number of Hedge Fund Holders: 47
Super Micro Computer, Inc. (NASDAQ:SMCI) is engaged in developing and manufacturing high-performance server and storage solutions. The company provides a wide variety of products, such as complete server systems, modular blade servers, workstations, networking devices, and various server subsystems.
Its offerings also include application-optimized server configurations and essential management software. Beyond hardware, it focuses on services like integration, configuration, software upgrades, and technical documentation.
Cramer mentioned the company and said:
“… The S&P component that finished dead last for the quarter, down 49%, was none other than Super Micro Computer, a partner of Nvidia that’s integral to the data center plumbing we need for artificial intelligence.”
Recently, Super Micro Computer (NASDAQ:SMCI) faced challenges that impacted its stock performance. For example, on September 26, a report from The Wall Street Journal indicated that the Department of Justice is investigating the company, though neither the DOJ nor Super Micro has confirmed this inquiry.
However, it is not the first time that the company has been investigated. In 2020, the Securities and Exchange Commission fined the company $17.5 million for accounting issues related to revenue recognition practices.
On October 2, Barclays adjusted the price target on the company stock to $42 from $438 due to expected near-term gross margin pressures. The firm maintained an Equal Weight rating on the stock.
Cramer also said, “Look, Super Micro Computer’s a good company even if its stock went to insane levels earlier this year.”
On September 23, before the stock split, Loop Capital lowered the price target on Super Micro Computer (NASDAQ:SMCI) to $1,000 from $1,500 but kept a Buy rating. The firm highlighted the company’s efforts to achieve gross and operating margins of 14% and 10%, respectively. The analyst suggested that the significance of the company in the field of generative AI is often “underappreciated”.
Scout Investments, Inc. 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 4th on our list of Jim Cramer stocks that finished dead last. While we acknowledge the potential of SMCI as an investment, our conviction lies in the belief that 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 SMCI but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
Read Next: $30 Trillion Opportunity: 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley and Jim Cramer Says NVIDIA ‘Has Become A Wasteland’.
Disclosure: None. This article is originally published at Insider Monkey.