In the past fifty years, Super Micro Computer’s stocks have surged by over 4,000%. The likelihood of a further 37.5% increase in the next five years remains uncertain. The US-based company is renowned for manufacturing data center equipment pivotal to the advancement of artificial intelligence technology. With a market capitalization nearing \(50 billion and an anticipated doubling of annual fiscal revenue to approximately \)15 billion this year, Super Micro Computer has demonstrated substantial growth.
Despite its impressive financial performance, the company faces escalating working capital demands necessitating short-term funds. To address this, Super Micro recently ventured into the volatile convertible bond market, issuing hybrid debt worth $1.5 billion. This move hinges on the condition that all Super Micro stock must appreciate by 37.5% for the opportunity to be profitable.
Several firms, such as Lyft and Global Payments, have recently explored convertible bonds, leading to a surge in market activity. However, the fluctuating nature of this market poses risks, as observed in the February setback following heightened issuance levels. Super Micro’s high valuation may result in minimal discount payments, reflecting prevailing high-interest rates.
During the convertible bond boom of 2020⁄2021, companies like Beyond Meat and Peloton managed to offer convertibles without discount obligations, underscoring a cautious approach towards equity conversion. Specialized hedge funds typically invest in convertible bonds, employing strategies that involve purchasing bonds and short-selling the underlying stock to mitigate risks and secure returns.
The absence of cash payments due to a zero percent coupon implies that investors holding the bond are essentially purchasing equity at a premium. Super Micro’s executives have communicated a strategic focus on reducing dispersion and raising capital to investors, highlighting their commitment to financial efficiency.
The upcoming convertible offering is expected to dilute Super Micro’s shares marginally, with the $1.5 billion cash infusion providing a temporary boost to the company’s liquidity position.
