New Trade Idea for Super Micro After $20 Billion Saudi Deal Turns Heads
Here's my plan to profit after the data center firm announced a major partnership.
You're reading 0 of 1 free page.
Register to read more or Unlock Pro — 50% Off Ends Soon
All over the place.
That's how the shares of Super Micro Computer SMCI have traded since early 2024. The firm was added to the S&P 500 back on March 18, 2024, replacing Whirlpool WHR in the index at the time.
Since the firm's addition, its spot in that index has at times appeared fragile as the firm faced several challenges, including delayed regulatory filings and the resignation of the firm's auditor. As a matter of fact, it has been ejected from the Nasdaq 100, replaced in that index by Palantir Technologies PLTR on December 23, 2024. That said, the firm still had the audacity to go through with a 10-to-one stock split on October 18, 2024, that had been announced when the stock was trading at the highs of the year.
New News
SMCI is up an incredible 15% early on Wednesday morning as the firm was reported to have entered into a multi-year partnership agreement with DataVolt, which is a leading Saudi Arabian data center company. This is on top of a 16% run on Tuesday.
The deal is valued at $20 billion and is expected to "fast-track delivery of ultra-dense GPU platforms and tack systems for DataVolt's hyperscale campuses in the Kingdom of Saudi Arabia and the U.S." according to a statement released by DataVolt.
Charles Liang, CEO of Super Micro, commented, “By working together, we will bring cutting-edge AI and compute infrastructure, enabling the Kingdom’s vision of becoming a global hub for technology and innovation.”
Wall Street
Simon Leopold of Raymond James, who is rated at five stars (out of five) at TipRanks, weighed in. Leopold initiated coverage of SMCI with an "Outperform" rating, which is considered to be "buy-equivalent." However, and this looks odd, Leopold put a $41 target price on the stock, which would be down from the last sale on my screen but up 28% from Tuesday night's closing price.
What's clear is that Leopold likes the company. He sees Super Micro as emerging as a "market leader" in AI-optimized infrastructure. The firm's AI platforms make up nearly 70% of Super Micro's revenue generation, as the firm is also expanding its share of the branded AI server market. Leopold sees the company as having positioned itself in what he calls a "sweet spot" between the branded IT suppliers like Dell DELL and HP Enterprise HPE, and contract manufacturers like Quanta.
Trading
Readers will see that SMCI sold off from last June through November. In February of this year, the stock rallied only to be sharply rejected, very close to a 50% retracement of that entire sell-off. We call that the "half-way back." Just some education... 50% retracements are real levels that impact trading but are not Fibonacci levels despite being included in most store-bought Fibonacci models provided by charting services.
The stock traded in a very "tight" range from late March into mid-May. Tight trading ranges tend to be patterns of continuance. When there is a breakdown or breakout from one of these ranges, we watch for a quick reversal to see if the level that has been broken ends up as either support or resistance. In this case, it would be support.
What would be key for me, more important than the actual top of that tight range, would be to see if the 200-day SMA ($39.90) can be held on such a test. That is what portfolio managers who will decide whether or not to increase long-side exposure will be watching.
For me, I am not chasing. I am interested in writing the June 20 $40 puts for about $2.90. If the stock never comes in, I pocket the $2.90. If I do end up having to eat the stock at $40, I'll have a net basis of $37.10. Acceptable risk in my opinion.
At the time of publication, Guilfoyle was long PLTR equity.
