Time to Buy Michael Saylor’s Strategy as Bitcoin Price Finds Support?
Two beaten-down names, Super Micro Computer and Strategy, are moving higher. But can the rallies continue?
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Much of this week’s market discussion involved companies that have gone through difficult times in recent months. Now these names appear to be cheap, especially when measured against this year’s top performers.
Sometimes, bargains can be had, but not everything that’s on sale is cheap. Let’s take a closer look at two down-and-out names that are suddenly attracting investor interest.
1. Super Micro Computer (SMCI)
Super Micro Computer (SMCI) provides high-performance server and storage equipment. This AI-infrastructure stock jumped by nearly 20% on Wednesday.
On Tuesday, Super Micro preannounced Q4 revenue at the low end of guidance. However, the company revealed a significant increase in its projection for gross margins, from 8.2% to 8.4% to 15% to 17%. Super Micro also announced that its backlog had grown to $60 billion.
Out of Favor
Investors should be aware that this company has been deeply out of favor. SMCI is down slightly year-to-date, even after Wednesday’s impressive gain. Over the past 12 months, SMCI has fallen by 38%.
Early in June, investors were excited about SMCI due in part to its backlog (point A). Buyers were then crushed when the company announced a $7 billion capital raise.
Despite occasional rallies, Super Micro shows a persistent pattern of lower highs and lower lows. Wednesday’s rally wasn’t enough to push the stock back above its 50-day (blue) and 200-day (red) moving averages.
It’s Always Something
In 2024, Super Micro Computer faced accusations of accounting irregularities. This led to the resignation of Ernst & Young as the company’s auditor.
Also, individuals linked to Super Micro allegedly schemed to illegally ship billions worth of servers and GPUs to China.
It’s not for me to say if the company has been involved in any wrongdoing. That’s for the courts to decide.
Taking all this into account, though, I have concerns about Super Micro Computer. I’m not convinced that Wednesday’s good news changes anything. I’m continuing to avoid the stock for now.
2. Strategy (MSTR)
Strategy (MSTR), formerly known as MicroStrategy, is a software provider that doubles as a bitcoin holding company. With bitcoin reaching a one-month high this week, some investors are considering new positions in this beaten-down stock.
After a long dry spell, Strategy is generating some excitement. The stock has gained 5% over the past week, in a difficult year that has seen the shares decline by 36%.
Software has been one of the weaker areas of tech, with the benchmark State Street Software and Services ETF (XSW) down 7% year-to-date. XSW was crunched for a 4% loss on Wednesday.
Some of the biggest names in software are feeling the pain. Shares of Oracle (ORCL) have lost 36% year-to-date. German software giant SAP (SAP) has lost 37%.
Bitcoin Bounce?
Meanwhile, bitcoin has lost 24% year-to-date. Earlier this month, Strategy sold 3,588 bitcoin, valued at $216 million.
There is good news for bitcoin holders. A massive support level near $60,000 continues to hold (shaded yellow), and bitcoin reached a one-month high this week.
However, if you want to own bitcoin, this can be done by buying the asset itself, or via a derivative such as iShares Bitcoin Trust ETF (IBIT). Due to the ongoing weakness in software stocks, now might not be the right time for a software provider/bitcoin holding company like Strategy.
