Supermicro’s stock falls hard on $2B convertible notes offering

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Shares of Super Micro Computer Inc. fell almost 10% on Monday after the company announced a convertible note offering worth $2 billion that’s set to mature in 2030.

The company, which has become one of the biggest beneficiaries of growth in the artificial intelligence industry due to soaring demand for the Nvidia Corp. graphics processing units that power its servers, said the proceeds of the sale would be used for “general corporate purposes, including to fund working capital for growth and business expansion. It will also set aside around $200 million to buy back stock from note issuers.

According to Supermicro, it could potentially add on another $300 million of the notes if there’s sufficient demand for them. The notes will be offered exclusively to qualified institutional buyers, and can only covert to stock or cash under certain conditions. As part of the deal, the company has also set aside around $200 million to buy back stock from note issuers.

The stock decline isn’t surprising, as the eventual conversion of convertible offerings means the value of existing shares could ultimately be diluted.

GuruFocus analyst Khac Phu Nguyen said Supermicro is using a complex strategy known as “capped call transactions” to try and minimize the share impact if and when the notes are converted, but it means that the institutions will be buying and selling both the stock and derivatives, potentially causing “unusual volatility”, especially during conversion windows. Still, he adds that the offering is a bullish signal overall that the company believes it will grow.

Even with the latest decline, Supermicro’s stock is still up more than 34% in the year to date, as the company is only one of a handful of server makers that have access to the latest chips from Nvidia and other chipmakers, such as Advanced Micro Devices Inc. and Intel Corp. Supermicro is widely considered by Wall Street to be an “AI pure play” and many investors expect that it will continue to appreciate as hyperscale data center operators make good on their promises to invest billions of dollars in building out their AI infrastructure.

Analysts from Raymond James said in a note last month that Supermicro has emerged as one of the market leaders for “AI-optimized infrastructure”, which accounts for more than 70% of its revenue. The stock was rated as a buy.

Supermicro was recently boosted after landing a major contract with Humain, a newly launched AI company that’s backed by Saudi Arabia’s Public Investment Fund, announced when U.S. President Donald Trump visited that country in May.

The company’s stock has had a rocky ride over the last 12 months, falling sharply last year when concerns were raised about its accounting practices, raising fears that it could be delisted from the Nasdaq if it didn’t get its act together. The company ended up filing its delayed financial reports just hours before the exchange’s deadline for doing so was set to expire, and its stock soared to a new all-time high. However, investor enthusiasm soured after Supermicro cut its outlook in May, citing tariff-related uncertainty.

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