Equities
Super Micro's 40.5% drop highlights AI stock volatility; market eyes Powell's stance amid FOMC and robust job growth data.
By Mackenzie Crow
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Super Micro Computer Inc (SMCI) experienced a significant drop of 40.5% since its high in March, illustrating the volatile nature of artificial intelligence (AI) stocks. This event serves as a cautionary tale for investors, emphasizing the importance of understanding the businesses they invest in. SMCI, a favorite among the momentum (momo) crowd for its involvement in AI, faced a sharp decline after its earnings release, highlighting the risks associated with limited knowledge and the speculative nature of such investments. The Arora Report had previously warned about the overvaluation of SMCI, noting its lack of a competitive moat and the potential challenges it could face as chip availability increases for competitors.
The Federal Open Market Committee (FOMC) is expected to maintain interest rates, with significant attention on Chair Jerome Powell's conference for indications of future monetary policy. The market anticipates higher volatility during Powell's address, reflecting concerns over inflation and the potential direction of interest rates. Additionally, the ADP employment change report showed stronger-than-expected job growth, particularly at the lower end of the wage scale, while IT and finance sectors remain weak. This data contributes to the broader economic picture that investors must consider in their decision-making.
The U.S. Treasury plans to borrow $243 billion in the second quarter, exceeding previous estimates. This increase in borrowing and its composition could influence market dynamics, as past manipulations have led to higher stock and bond market levels. Early trading money flows indicate positive movements in Amazon.com Inc, neutral in Meta Platforms Inc, and negative in Apple Inc and SPDR S&P 500 ETF Trust. These flows provide insight into investor sentiment and market trends, which are crucial for making informed investment decisions.
"SMCI has become a favorite of the momo crowd. The momo crowd incorrectly thinks SMCI has the same potential as Nvidia (NVDA)... SMCI is an assembler of servers for artificial intelligence... NVDA has a large moat to protect it that includes IP for its GPUs. SMCI has no moat and the barrier to entry for competitors is low... As chips become more available to competitors, SMCI will not be able to sustain its sales growth rate."
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