Super Micro Computer, Inc. (SMCI) delivered disappointing quarterly results for its fiscal Q1 ending Sept. 30 on Nov. 4. The company’s stock has experienced a significant downturn, with investors losing confidence in this AI server company. However, a notable and unusual surge in call option activity surrounding SMCI suggests a potential buying opportunity. As of December 24th, SMCI’s stock price stood at $30.55 in morning trading, a considerable drop from its October 8th peak of $58.68 (-48%) and the pre-earnings price of $50.75 on November 3rd (down 40%). The question is whether this decline has been overdone, and considerable call option buying is a key indicator.
The recent downturn at Super Micro Computer is attributed, at least in part, to a single customer delaying their AI server and rack orders until the following fiscal quarter, which ends December 30th. This impacted the company’s negative revenue growth and lower net income, along with depressed margins. Analysts are generally optimistic about the company’s future prospects, anticipating a rebound in profitability. Barchart’s survey of analysts projects the next earnings per share (EPS) to increase to 52 cents per share, up from 35 cents in the previous quarter. Furthermore, Seeking Alpha’s analysts estimate an average EPS for the fiscal year ending June 30, 2026, to be $2.06. This suggests that SMCI is currently trading at a relatively low multiple of just 17.2x, compared to its historical average. Historically, Super Micro’s 5-year forward Price/Earnings (P/E) multiple has averaged between 16.7x and 18.7x (GAAP / non-GAAP), according to Morningstar, with an average of 18.63x. This valuation points to a potentially undervalued stock.
The heavy call option buying observed today is highlighted in Barchart’s Unusual Stock Options Activity Report. The report details the trading of two large tranches of SCMI call options with expiration dates on January 2, 2026 (approximately 9 days to expiry, or “DTE”). Specifically, nearly 30,900 calls expiring Jan. 2 at the $32.50 call strike price and 30,800 calls at the $31.00 call strike price were traded. These represent over 26x and 25.7x the prior number of outstanding contracts, demonstrating significant investor interest. The breakeven points for these options are just $32.78 and $31.70, respectively, representing relatively modest increases of +3.9% and 0.5% over the current trading price. This indicates that the buyers of these options have high confidence in a near-term price increase.
Several interpretations of this call option activity have been suggested. One possibility is that it reflects hedging activity from institutional short sellers. These investors may still be short SMCI stock and, to mitigate their risk, have begun purchasing call options. The expectation is that the first fund to close out their short positions will drive the stock price higher. Alternatively, the call option buying could represent a genuine belief that Super Micro’s fortunes are improving and that the market has underestimated the company’s potential as AI server demand continues to grow. However, it is important to acknowledge that 9 days is a relatively short timeframe and that the option premiums could erode if Super Micro does not experience a substantial price increase. Therefore, investors should exercise caution when mimicking this call option activity and carefully consider the associated risks and potential rewards. Mark R. Hake, CFA, did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com
