We recently compiled the following list: Jim Cramer's Latest Watch List: 10 Stocks to KnowIn this article, we'll look at where Supermicro Computer, Inc. (NASDAQ:SMCI) sits on Jim Cramer's latest list of hot stocks.
In a recent episode of Mad Money, Jim Cramer advised investors to hold onto stocks in hopes of a recovery after a market decline. This advice worked, as the Dow rose 484 points (1.16%) and the Nasdaq also rose 1.16%, showing that selling during a market decline is not the best choice.
“Last week I advised everyone to hold off on selling everything and wait, trusting that we would see a recovery once the pain was over. The average investor took profits, with the Dow up 484 points or 1.16% and the Nasdaq also up 1.16%. While it may not be a full recovery, it shows that selling on Friday's dip was not the best strategy.”
Jim Cramer noted that last week was a tough week for cyclical and tech stocks, despite mixed employment data for August. The data suggested a balanced economic outlook — neither too strong nor too weak — and initially looked favorable for those hoping for a rate cut from the Federal Reserve. However, Wall Street reacted negatively, shifting from cyclicals to recession-proof sectors such as consumer goods and pharmaceuticals, with industries like industrials and semiconductors particularly affected.
Cramer noted that recession-proof stocks such as pharmaceuticals and medical equipment have performed well recently, but they have seen big price increases, raising concerns about a possible correction.
“Today, recession-proof stocks like pharmaceuticals, pharmaceutical wholesalers and medical devices are doing well, but the danger is that these stocks have risen too quickly and a correction may be on the way.”
He emphasized that historically, when the Federal Reserve cuts interest rates, it signals a shift in investment strategy. With the Fed expected to cut interest rates soon, Cramer suggests investors consider moving away from recession-proof stocks and turning to more cyclical companies that could benefit from stimulus. Investing in cyclical stocks during a recession can be difficult, but the expected rate cuts could make these stocks more attractive. Cramer recommends staying diversified while being prepared to adjust your investment strategy based on the economic outlook.
“Historically, we know that when the Fed cuts rates, it's time to shift focus. With the Fed leaning toward easing and a rate cut expected next week, it's time to consider moving away from recession-proof stocks and investing in more cyclical companies. Cyclical stocks are hard to buy during a downturn, but if you expect the Fed to give the economy a boost, they become a strong opportunity. It's important to stay diversified, but be prepared to adjust if necessary.”
Our Methodology
In this article, we review a recent episode of Jim Cramer's Mad Money, where Cramer talks about several stocks. He selects 10 companies from the list and discusses how hedge funds are investing in them. At the end, we rank these companies from least to most owned by hedge funds.
At Insider Monkey, we focus on stocks that hedge funds are concentrating their investments on. The reason is simple: our research shows that by mimicking the top stock picks of the best hedge funds, you can beat the market. The strategy in our quarterly newsletter selects 14 small and large stocks each quarter, and has returned 275% since May 2014, beating the benchmark by 150% (Learn more).
Super Microcomputer Corporation (NASDAQ:SMCI)
Number of hedge fund investors: 47
Jim Cramer comments on the recent volatility of Supermicro Computer, Inc. (NASDAQ:SMCI), a partner of NVIDIA Corporation (NASDAQ:NVDA). Cramer notes that Supermicro Computer, Inc. (NASDAQ:SMCI) fell from $404 to $386 on Friday, in the wake of a report from short seller Hindenburg that accused the company of aggressive accounting practices. However, Supermicro Computer, Inc. (NASDAQ:SMCI) has recovered to nearly $410 today. Cramer questions whether this recovery is significant or merely a temporary fluctuation, suggesting that the recent price fluctuations may not be a clear indication of the company's true performance.
“How about this absurdity? Supermicro fell from $404 to $386 on Friday, still held back by a report from short seller Hindenburg about the company's aggressive accounting practices. And today, Supermicro has rallied back up to nearly $410. Either the rally was meaningless, or the bounce was meaningless, or both were meaningless. We don't know.”
Super Micro Computer Inc. (NASDAQ:SMCI) is a strong investment option due to its strong growth in the AI and high-performance computing markets. Driven by increasing demand for AI applications, Super Micro Computer Inc. (NASDAQ:SMCI) is outperforming in AI server infrastructure. For fiscal year 2024, Super Micro Computer Inc. (NASDAQ:SMCI) reported revenue growth of 143% to $5.31 billion. Net income increased 82%, but margins are declining as Super Micro Computer Inc. (NASDAQ:SMCI) focuses on gaining market share through competitive pricing.
Looking ahead, Supermicro Computer Inc. (NASDAQ:SMCI) is expected to double its revenue to $26 billion to $30 billion in fiscal 2025. Analysts are forecasting Supermicro Computer Inc. (NASDAQ:SMCI) growth, expecting revenue and earnings per share to grow 58% and 52% annually, respectively, from 2023 to 2026. Supermicro Computer Inc. (NASDAQ:SMCI) is strengthening its position in the fast-growing AI market by expanding partnerships with Nvidia, AMD, and Intel.
Additionally, a scheduled 1-for-10 stock split on October 1, 2024 could lower the stock price and make Super Micro Computer Inc. (NASDAQ:SMCI) a more attractive company to investors. Despite facing margin pressures in the face of competition from larger companies like Dell Technologies Inc. (NYSE:DELL) and Hewlett Packard Enterprise Company (NYSE:HPE), Super Micro Computer Inc. (NASDAQ:SMCI) is a promising long-term investment due to its strong market presence and ambitious growth plans.
Pollen US Small Company Growth Strategy said the following about Supermicro Computer, Inc. (NASDAQ: SMCI) in its Q2 2024 investor report: letter:
“The second largest contributor to the portfolio's relative performance was Super Microcomputer Corporation (NASDAQ:SMCI), a provider of high-performance, energy-efficient servers, is not included in the portfolio. Its shares have declined significantly this quarter, which has helped boost its relative performance. However, on a year-to-date basis, Super Micro remains the largest relative negative given its strong Q1 returns.”
SMCI is ranked 7th overall. While we acknowledge SMCI's potential, we believe that under-the-radar AI stocks have a better chance of delivering higher returns in the short term. If you're looking for AI stocks that are more promising than those on our list and are trading at less than 5x earnings, check out our report. Cheapest AI Stocks.
Read next: The $30 Trillion Opportunity: Morgan Stanley's 15 Best Humanoid Robot Stocks to Buy and Jim Cramer says NVIDIA has 'become a wasteland'.
Disclosures: None. This article originally appeared on Insider Monkey.
