markets

Super Micro craters on report that Oracle canceled a more than $1 billion contract

Super Micro’s share price was just on the verge of filling the gap caused by the bombshell revelation that its cofounder was indicted on allegations of smuggling servers containing Nvidia AI chips into China in violation of US export controls.

Now, that very same event may be fueling the latest rug-pull in the shares.

Super Micro Computer is down sharply in early trading after BlueFin Research said that the AI server company “lost a significant contract” with Oracle worth roughly $1.1 billion to $1.4 billion, according to reporting from Bloomberg. The canceled contract “is believed to be related” to the charges brought against Super Micro’s cofounder.

This contract loss “could be a leading indicator of companies seeking to de-risk their exposure to the server maker following the indictment of its co-founder for smuggling GPUs to China,” wrote Bloomberg Intelligence analyst Woo Jin Ho, noting that this could weigh on its sales prospects next year. “We view Dell as a leading beneficiary in picking up the order slack.”

Dell, which benefited from the announcement of the allegations back in March, is modestly lower in premarket trading.

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ServiceNow’s guidance shows that there’s no margin for error in software shortfalls

Why do investors like software stocks? Because they have high recurring revenues and extremely high margins.

Why are investors worried about the impact of AI on software stocks? At the most basic level, AI tools reduce the barriers to entry and the cost of creating software.

Nothing shows traders’ willingness to shoot first and ask questions later (or not bother to ask questions at all!) when the crux of the case for owning software seemingly shows cracks more than the reaction to ServiceNow’s Q1 results and updated outlook.

ServiceNow is cratering after the software company’s Q1 margins came in shy of estimates. Full-year guidance for ServiceNow’s gross and operating margins was revised lower, while subscription revenues got a big bump.

There are some extenuating circumstances that cut both ways: integrating recently acquired businesses is the proximate cause of the expected sales bump and operating margin pressure, according to management.

But given how important margins have been to the investment case for software stocks — and the significant profitability premium they’ve enjoyed relative to the S&P 500 as a whole — details don’t seem to matter.

In early February, Nvidia CEO Jensen Huang called the idea that the software industry would be replaced by AI the “most illogical thing in the world,” arguing that AI agents will leverage existing software tools rather than reinvent them.

(For what it’s worth, my view is that if AI is intelligent in a transcendent way, then reinventing the wheel is absolutely something you should expect. If AI is just fishing in the ocean of human consciousness with the best net possible, then it may work within our existing toolbox. I’m thinking about the story of why it took so long to develop a sewing machine — inventors were trying to mimic the motion of sewing by hand rather than taking a novel mechanical approach.)

But I digress. The bear case for software is that AI tools render many established giants obsolete. But going the way of the woolly mammoth isn’t something that happens overnight. You won’t be able to find any of them to ask, obviously, but I’m told it was a 10,000- to 16,000-year process.

Well before obsolescence comes the threat of incremental substitution. And margin pressure would be one way you’d expect competitive pressures to be absorbed. At the surface level, ServiceNow is affirming a base case for software stocks that traders have spent months fearing, which still apparently hasn’t taken the industry to levels where it’s viewed as attractively valued.

ServiceNow’s woes are dragging the entire software sector down

ServiceNow’s woes are dragging the entire software sector down

Nothing shows traders’ willingness to shoot first and ask questions later (or not bother to ask questions at all!) when the crux of the case for owning software seemingly shows cracks more than the reaction to ServiceNow’s Q1 results and updated outlook.

ServiceNow is cratering after the software company’s Q1 margins came in shy of estimates. Full-year guidance for ServiceNow’s gross and operating margins was revised lower, while subscription revenues got a big bump.

There are some extenuating circumstances that cut both ways: integrating recently acquired businesses is the proximate cause of the expected sales bump and operating margin pressure, according to management.

But given how important margins have been to the investment case for software stocks — and the significant profitability premium they’ve enjoyed relative to the S&P 500 as a whole — details don’t seem to matter.

In early February, Nvidia CEO Jensen Huang called the idea that the software industry would be replaced by AI the “most illogical thing in the world,” arguing that AI agents will leverage existing software tools rather than reinvent them.

(For what it’s worth, my view is that if AI is intelligent in a transcendent way, then reinventing the wheel is absolutely something you should expect. If AI is just fishing in the ocean of human consciousness with the best net possible, then it may work within our existing toolbox. I’m thinking about the story of why it took so long to develop a sewing machine — inventors were trying to mimic the motion of sewing by hand rather than taking a novel mechanical approach.)

But I digress. The bear case for software is that AI tools render many established giants obsolete. But going the way of the woolly mammoth isn’t something that happens overnight. You won’t be able to find any of them to ask, obviously, but I’m told it was a 10,000- to 16,000-year process.

Well before obsolescence comes the threat of incremental substitution. And margin pressure would be one way you’d expect competitive pressures to be absorbed. At the surface level, ServiceNow is affirming a base case for software stocks that traders have spent months fearing, which still apparently hasn’t taken the industry to levels where it’s viewed as attractively valued.

markets

Matt Phillips60m

Oklo says it’s partnering with Nvidia, sending the stock up

Oklo shares were up in early Thursday trading after the revenue-free retail favorite announced a collaboration between itself, Los Alamos National Laboratory, and Nvidia “to support critical infrastructure development and accelerate the deployment of nuclear energy.”

Oklo said in its press release:

“Projects under the agreement include integrated full-stack solutions to support nuclear powered AI factories; AI development, including physics and chemistry trained AI models to support nuclear fuel R&D; grid stabilization, reliability, and redundancy studies; materials science efforts focused on plutonium-bearing fuel; and proof of concept work related to the development of a nuclear powered AI factory.”

The release leaves several questions about the agreement between Oklo, Nvidia, and the storied federal nuclear research center unanswered, including which entity, if any, is providing funding, and a timeline for the research to begin or yield possible useful findings. Sherwood News has reached out to Oklo for comment and will update with any additional information.

Oklo’s shares have been ripping lately. They’re up more than 8% in Thursday morning trading, pushing their gains so far this month to more than 50%.

That surge — in shares of a company with no commercially available products and no revenue — is part and parcel, after a few weeks of war-related jitters, of the return of the speculative appetite we saw last fall.

Oklo, NVIDIA, and Los Alamos National Laboratory Collaborate to Advance Nuclear Fuel Validation at Los Alamos in Support of Nuclear-Powered AI Factories

“Projects under the agreement include integrated full-stack solutions to support nuclear powered AI factories; AI development, including physics and chemistry trained AI models to support nuclear fuel R&D; grid stabilization, reliability, and redundancy studies; materials science efforts focused on plutonium-bearing fuel; and proof of concept work related to the development of a nuclear powered AI factory.”

The release leaves several questions about the agreement between Oklo, Nvidia, and the storied federal nuclear research center unanswered, including which entity, if any, is providing funding, and a timeline for the research to begin or yield possible useful findings. Sherwood News has reached out to Oklo for comment and will update with any additional information.

Oklo’s shares have been ripping lately. They’re up more than 8% in Thursday morning trading, pushing their gains so far this month to more than 50%.

That surge — in shares of a company with no commercially available products and no revenue — is part and parcel, after a few weeks of war-related jitters, of the return of the speculative appetite we saw last fall.

Zepbound vial

Hims rises after it says it now offers “full range” of FDA-approved GLP-1s

Hims providers can now send prescriptions to Eli Lilly’s direct-to-consumer pharmacy.

J. Edward Moreno2h

markets

Applied Digital surges after announcing $7.5 billion data center lease contract with its third hyperscaler client

Applied Digital is soaring in early trading after the data center company announcing that it’s booked its third hyperscaler client.

This customer signed a lease for $7.5 billion in contracted value over a 15-year period covering 300 megawatts of IT load at a location expected to begin operations in mid-2027.

“This addition expands total contracted lease revenue to over $23 billion and further diversifies the company’s customer base with a third hyperscale tenant,” per the press release. “More than 50% of total contracted revenue is now backed by investment-grade customers.”

During the company’s Q2 conference call in January, CEO Wes Cummins said Applied Digital was in “advanced discussions” on deals with another investment-grade hyperscaler for three different sites. During the Q3 earnings call earlier this month, Cummins said he was “more optimistic” that leases would get signed in the near term.

markets

Avis’ announcement of Q1 earnings next week may portend an imminent share offering

A lack of rental cars was a big issue for American travelers in 2021.

A fresh supply of rental car company shares may become a big issue for fans of the Avis short squeeze.

After the close on Wednesday, following its whopping 38% plunge, the company announced that it would be releasing its Q1 results on April 29. Why is that important?

This is not financial advice, but it would seem prudent for Avis’ management to take advantage of its richly valued shares to raise money. Its forward price-to-earnings ratio has spiked to above 135x during this parabolic advance, and analysts at JPMorgan just downgraded the shares to “underweight,” citing an “unsustainable valuation.”

A share offering would alleviate one of the presumptive factors behind the ferocity of Avis’ 427% gain from March 30 through Wednesday’s close: that its two biggest holders dominate the float, and as such, it may be difficult for short sellers to extricate themselves from their bets against the stock. That angle may have already passed its best-before date, however, as trading volumes in excess of $19 billion this week somewhat undermine the argument that short sellers struggling for liquidity are locked into losing positions.

Share offerings are what companies that benefit from big spikes out of nowhere tend to do (ask AMC!), unless they can’t. And if they can’t, they aim to find a way around that (ask GameStop!).

About two years ago, during the return of Roaring Kitty meme mania 2.0, the video games and collectibles retailer was seemingly constrained from offering shares because it was in a “blackout period” ahead of earnings (which had been scheduled for June 7). As such, management released preliminary results on May 17 along with plans to sell up to 45 million shares on the open market.

It’s impossible to tell if Avis pulled forward the date of its earnings in order to capitalize on its elevated stock price. But we’d be remiss not to note that Avis has not released its Q1 results in the month of April since 2006. Typically, they’ve dropped in the first week of May (last year, on May 7).

I’ll take this opportunity to recycle one of my favorite tweets on the subject.

Alzmann levered — (@RodAlzmann/X)

For any corporate entities offended, we would of course concede that one person’s “shitco” is another person’s deep value, diamond-in-the-rough turnaround story — and that’s what makes a market.

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