Why Super Micro Computer Stock Is Plummeting Again Today

Super Micro Computer (NASDAQ: SMCI) stock is seeing big sell-offs again in Thursday's trading. The server specialist's share price was down 10.3% as of 3:30 p.m. ET.

Supermicro has already been struggling with accounting problems, delayed financial filings, and other difficulties, and now it seems a major new competitor is moving in on its turf. With its quarterly report and conference call yesterday, Cisco announced that it plans to enter the AI server market.

Things keep getting worse for Supermicro

After the market closed yesterday, Cisco published results for the first quarter of its current fiscal year, which ended Oct. 26. Investors weren't thrilled with the results, and the company's share price has dipped in today's trading, but the networking giant did surprise Wall Street by announcing that it will be entering the high-performance server market. That's not good news for Supermicro.

Prior to its recent stumbles, Supermicro has enjoyed a dominant position in the high-end server market tailored for artificial intelligence (AI) use cases. But following missed regulatory filings, the resignation of its auditor, and other sources of controversy, the company's competitive positioning appears to be weakening at an alarming pace.

Supermicro's lead in the server market could deteriorate rapidly

Reports have recently emerged that Nvidia is diverting orders for its industry-leading graphics processing units (GPUs) from Supermicro to other customers. Nvidia's GPUs are the key hardware component in Supermicro's servers. These processors do not currently have comparable replacements, and the server specialist will take a major sales hit if its access to these products is curtailed.

Prior to Cisco's announcement that it will be entering the AI server market, it seemed that Dell would be the primary recipient of Nvidia GPUs that had previously been set for sale to Supermicro. With new players entering the space, Supermicro's importance as a customer to Nvidia looks poised to decline. If so, that suggests a significantly weaker sales outlook for the business.

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Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Cisco Systems and Nvidia. The Motley Fool has a disclosure policy.