Why Super Micro Computer’s Super Rally Could Continue Marching Higher - Super Micro Computer (NASDAQ:SMCI)

A potential rags-to-riches tale twice over, information technology specialist Super Micro Computer Inc. SMCI represents one of the hottest trades on Wall Street right now. Ordinarily, an enterprise like Super Micro — which specializes in high-performance servers critical for artificial intelligence — would be booming in the current tech environment. Unfortunately, an ignominious accounting controversy derailed its prior bull run. Still, the company may have finally righted the ship.

In August of last year, a report by short seller Hindenburg Research blasted Super Micro for accounting manipulation, sibling self-dealing and sanctions evasion. Soon thereafter, the accusations attracted subpoenas from the Department of Justice and the Securities and Exchange Commission. Not helping matters was that a few months later, accounting firm Ernst & Young resigned as the company's auditor.

To be clear, an independent Special Committee found no evidence of fraud or misconduct on the part of management or the company's board. However, Super Micro did itself no favors by missing the filing of its Form 10-K with the SEC back in the middle of 2024. The tech specialist temporarily avoided delisting from Nasdaq in November by appointing a new auditor. However, the exchange issued a Feb. 25 deadline to regain compliance.

Fast-forward to Tuesday of this week, when management stated that it would meet the aforementioned deadline. In addition, the leadership team laid out an ambitious growth target, projecting fiscal 2026 revenue to hit $40 billion despite a mountain of obstacles. This strong showing of confidence—a sales forecast CEO Charles Liang labeled as a "conservative estimation"—helped send SMCI stock skyward.

Although the equity is on pace for a blistering return this week, there could still be more room to run.

Also Read: S&P 500 Nears Another All-Time High: What’s Driving The Action?

FOMO Fuels the Remarkable Rise of SMCI Stock

As mentioned in prior Options Corner columns, FOMO or the fear of missing out is a powerful emotional catalyst. This equity spark plug helped boost Robinhood Markets Inc. HOOD and Palantir Technologies Inc. PLTR despite these two enterprises already enjoying incredible performances. Therefore, a risk related to opportunity costs exists when prematurely exiting from a FOMO stock.

While skepticism reasonably abounds — after all, SMCI stock is a high-risk, high-reward idea — it's worth pointing out that some technical analysts see further upside ahead. Essentially, SMCI — thanks to the radical pivoting of the fundamental narrative — could be breaking away from the negative implications of a head-and-shoulders pattern that was forming in the price chart.

If this bullish pivot holds true, it's possible that SMCI stock could reach certain resistance targets at $49, $62 and $80 quickly. As well, speculators should note that the equity previously exchanged hands above $100. Therefore, additional upside from here wouldn't be entirely out of the question.

What's more, the statistical evidence is quite enticing. A purely stochastic or temporal view of pricing data over the past five years reveals that a position entered at the beginning of the week has about a 53.4% chance of rising by the end of it. Over a four-week period, the long odds improve to 57.63%. In many ways, short-term speculators have the wind at their backs.

However, probabilities of a security can change based on dynamic conditions or parameters. For example, SMCI stock posted a return last week of 33.38%. Whenever SMCI gains 10% or more in a one-week period, the long odds in the subsequent week stand at 55.88%. Over a four-week period, the success ratio pops to 61.8%.

One caveat is that one-week returns of 30% or more are rare: it's happened four times over the past five years. Admittedly, there has only been one positive return in the subsequent four-week period. However, that one performance brought home a gain of almost 62% (in late May 2023).

Plotting a Bullish Strategy for Super Micro

While the trajectory for SMCI stock appears to favor the bullish angle, technically speaking, the equity may fall just shy of the 10% mark for this week. However, given the special circumstances surrounding the underlying company, I believe it is appropriate to model SMCI as if it did breach the double-digit percentage threshold.

Assuming this framework, there are two intriguing ideas to consider, both involving a multi-leg options strategy called the bull call spread. A bull spread involves buying a call option and simultaneously selling a call option at a higher strike price for the same expiration date. The idea is to use the credit received from the short call to partially offset the debit paid for the long call. While this transaction necessarily caps the maximum reward possible, it also discounts the net long position.

A conservative trade — under the relative context of a high-risk, high-reward transaction, of course — would be to consider the 45/50 bull call spread for the options chain expiring March 14. At the time of writing, this trade requires a debit paid of $220 (which is the most that can be lost) for the chance to earn $280 or a payout of over 127%.

For a swing-for-the-fences approach, an ultra-aggressive trader may consider the 51/55 bull spread for the options chain expiring March 7. This transaction aims to take advantage of the expansion of the price volatility curve three weeks following a double-digit return. It's also possible that this expansion could occur earlier, thus allowing the chance for an early exit. Here, traders would pay $115 for the chance to earn $285, a payout of almost 248%.

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