Super Micro Computer Inc. drops in value following inclusion in S&P 500 – should investors consider buying the AI stock now?

Super Micro Computer Inc. drops in value following inclusion in S&P 500 – should investors consider buying the AI stock now?

Super microcomputer (NASDAQ:SMCI) The stock lost substantial ground during Monday’s trading. The company’s stock price closed the daily session down 6.4% according to data from S&P Global Market Intelligence. Notably, the decline occurred even though the S&P500 the index rose about 0.8%.

Supermicro stock was added to the S&P 500 today, replacing Whirlwind in the benchmark index. The move was announced on March 4, and the server specialist’s stock saw explosive gains on the announcement. Even with today’s hindsight, Supermicro’s stock price is still up about 11% since the company’s addition to the index was announced.

Being included in the S&P 500 Index is often a bullish sign for a stock. Once a company is part of the S&P 500, investors who purchase exchange-traded funds (ETFs) that track the index will also effectively purchase shares of that company. In turn, this tends to increase demand and drive up its stock price. Being part of the S&P 500 is also a prestigious distinction, and it can strengthen the attractiveness of a still relatively little-known company, like Supermicro.

But in this case, it appears that some investors were too excited about the short-term price impact that adding to the index would actually have. While the stock actually rose as much as 7.4% in early trading, many shareholders decided to take profits shortly after the market opened.

Is Supermicro stock still a smart buy?

Even with today’s selloff, Supermicro has been one of the best-performing artificial intelligence (AI) stocks this year. The company’s stock price has soared approximately 252% over the course of 2024 on AI-driven demand for its high-performance rack servers.

Super Micro Computer Inc. drops in value following inclusion in S&P 500 – should investors consider buying the AI stock now?

SMCI PE Ratio Chart (Forward)

Supermicro stock now trades at about 46 times this year’s expected earnings and just under 33.5 times next year’s expected earnings. Meanwhile, the company has a forward price-to-earnings growth (PEG) ratio of around 0.5 and a one-year forward PEG of around 0.6. Generally, a PEG below one is considered an indication that a stock is undervalued.

Based on the company’s recent sales and earnings growth and the emergence of AI-related tailwinds, it’s not unreasonable to think that Supermicro stock can still deliver big gains in the long term. But investors should approach the stock knowing that near-term performance could be volatile on the heels of such explosive growth. With this in mind, take a spread of costs in dollars The stock’s approach currently appears to be a sound strategy for the bulls.

Should you invest $1,000 in Super Micro Computer right now?

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Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has no position in any of the securities mentioned. The Motley Fool has a disclosure policy.

Super Micro Computer Fell After Being Added to the S&P 500 Today: Is It a Chance to Buy AI Stock? was originally published by The Motley Fool

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