Super Micro Computer Soars: SMCI's Meteoric Rise Sparks Memories of Meme Stock Frenzies

Equities show resilience after inflation comes in unexpectedly hot

• The market is bouncing back to record highs, shrugging off Tuesday's stumble, driven by resilient tech sector.
• Earnings yield mixed reactions as DraftKings and DoorDash miss, while Applied Materials exceeds expectations.
• Super Micro Computer's astounding surge echoes meme stock fervor, so we advise caution amid the volatile market.

In retrospect, Tuesday's market hiccup seems like a minor blip, as stocks swiftly rebounded, reclaiming earlier losses, and surging to new record highs.

By Thursday's close, the S&P 500 had climbed by 0.58% to reach an unprecedented 5029.73, while the

Nasdaq Composite edged up 0.3%, trailing just 0.5% below its peak. However, the resilience of these gains might face scrutiny following today's unexpectedly robust producer price index (PPI) report.

The earnings landscape presented a mixed bag, with several notable companies delivering their quarterly results. DraftKings (DKNG), despite a nearly 50% surge in revenues, fell short on earnings but offered optimistic guidance above analysts' expectations. The company also unveiled plans to acquire Jackpocket for $750 million, a move aimed at diversifying into lottery games, yet premarket trading saw DKNG shares dip by 4.5%.

Other stocks

Meanwhile, Applied Materials (AMAT) exceeded revenue and earnings projections, with forward guidance aligning closely with forecasts. Riding a 15% year-to-date surge as of Thursday's close, AMAT was poised to open premarket trading with an additional 12% uptick.

DoorDash (DASH), amidst revenue and order upticks, stumbled on earnings, although its shares had soared by 77% since October, closing just above $126 on Thursday but indicating a 7% decline in premarket trading.

Roku (ROKU), despite surpassing revenue expectations and offering favorable guidance, faced a 16% premarket decline. Since late October's nadir of slightly over $55, Roku had surged by nearly 73% through Thursday.

Coinbase (COIN), reporting revenue figures far exceeding analyst forecasts, appeared to benefit from heightened cryptocurrency activity despite concerns over the impact of new bitcoin ETFs. Indications suggested a 16% premarket surge for Coinbase shares.

Amidst efforts to bolster profits, Toast (TOST) announced plans to cut 550 jobs, while Nike revealed intentions to trim 1,600 positions, constituting about 2% of its global workforce.

Yet, the standout story was Super Micro Computer (SMCI), whose servers support artificial intelligence (AI) and collaborate closely with chip giants like Advanced Micro Devices (AMD) and Nvidia (NVDA).

Beware irrationality

SMCI's remarkable ascent from slightly over $284 at 2023's close to $1,004 by Thursday's end drew comparisons to past meme stock frenzies. However, attempting to rationalize such movements may prove futile, echoing the Wall Street adage: "markets can remain irrational longer than you can stay liquid."

Looking ahead, the market's reaction to the latest PPI report—which marked the second inflationary surprise this week—remains a focal point.

While Tuesday's consumer price index data postponed expectations of a rate cut from May to June, today's report hasn't significantly altered those projections thus far. Given the market's current heights, a potential pullback wouldn't be unexpected, although investors shouldn't underestimate the market's resilience.

Maintaining adherence to investment strategies and long-term goals remains paramount amidst such fluctuations.

JJ Kinahan is CEO of IG North America—which includes tastylive, tastytrade and IG's FX Business. Kinahan traded for 21 years at the Chicago Board Options Exchange. He serves on the CBOE Advisory Board and the SIFMA Options Committee. @thejjkinahan

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