Why Super Micro Computer Stock Gave Up Early Gains and Fell Double Digits Today

Shares of Super Micro Computer (NASDAQ: SMCI) were all over the stock charts today as the artificial intelligence (AI) stock was officially added to the S&P 500 index.

Supermicro, as the the maker of AI servers and storage equipment is known, initially jumped on the news, gaining as much as 7.4% at the open, but slid over the course of the morning, and was down 10% by 1:05 p.m. ET.

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Why Supermicro couldn’t hold onto its gains

Supermicro has been one of the biggest winners in the AI boom over the last year, but it’s also been one of the most volatile as its recent gains seem to be driven as much by improving fundamentals as they are by momentum, with the stock up more than 200% year to date.

Today’s sell-off seemed to be a buy-the-rumor/sell-the-news type of event as investors took the opportunity to take profits after Super Micro Computer was added to the S&P 500. Shares of the AI hardware specialist jumped 19% two weeks ago when S&P Global said it would be added to the benchmark index.

While trading volume in the stock was trending above its three-month average today, it was still lower than many of the stock’s busiest days in recent weeks.

Today’s decline was also in contrast to most of the AI sector, which gained in anticipation of Nvidia‘s annual GTC conference, which begins today.

Where is Supermicro stock headed?

Admission to the S&P 500 is a positive for Super Micro Computer as it forces exchange-traded funds (ETFs) that track the index to buy the stock and acts as a stamp of approval from S&P Global.

Over the long term, Supermicro stock looks well positioned to be a winner if the AI boom continues given its strength in essential hardware, but investors should expect the volatility in the stock to continue in the near term as it swings on news and momentum in the AI sector and due to activity from short-term traders.

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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.

Why Super Micro Computer Stock Gave Up Early Gains and Fell Double Digits Today was originally published by The Motley Fool