Super Micro Computer Inc., more commonly known as Super Micro, carved an impressive niche for itself in the world of high-performance computing systems, becoming a significant player within the technology space. However, the company faced an unforeseen stock collapse that trimmed its market value by close to $50 billion. This trend serves as a stark reminder of the risks involved in buying into the hype around Artificial Intelligence (AI).
Super Micro’s stock collapse can largely be attributed to a Bloomberg Businessweek report published in October 2018. The report alleged that Chinese spies had hacked Super Micro’s supply chain to install tiny chips, approximately the size of a grain of rice, on the company’s circuit boards. These chips could purportedly allow attackers to create a secret doorway into any network that included the altered machines. While these allegations were stoutly denied by Super Micro, Apple and Amazon – the two major consumers of Super Micro’s motherboards, it led to a nosedive in Super Micro’s market value.
The repercussions were substantial, with Super Micro’s shares falling 50% overnight. A report of this nature, coupled with an underlying and growing fear of data breaches, led to investor skepticism, and the value of Super Micro’s stock significantly diminished as a result.
The incident points to the pitfalls of investing in technology companies, especially those associated with hot new tech trends like AI. Notably, AI-based firms are particularly vulnerable to such risks due to the intense competition, lofty valuations, and the industry’s relative youth. This confluence of factors can create an environment ripe for overvaluation, followed by swift downgrades when sentiment changes, leading to collapses like Super Micro’s.
Most AI firms trade at high price-to-earnings (P/E) ratios, indicative of the significant growth potential that investors see in them. However, these higher P/E ratios can also represent a higher level of risk since any negative news or failure to meet growth expectations can lead to dramatic market reactions, as demonstrated by Super Micro.
Moreover, the AI industry is still in its embryonic stage, making accurate assessments of these companies’ potential profitability more difficult. As such, the industry as a whole could take a hit if one of its significant players crashes, like Super Micro, since it could dent widespread investor and consumer belief in these companies.
Super Micro’s stock crash can thus be seen as a representative case of the risks tied to the hype surrounding AI companies. While promising incredible returns, these firms might carry higher risk factors due to various
