Super Micro Vertical Stock Move Suggests ‘Casino Mentality’

(Bloomberg) — Super Micro Computer Inc.’s lengthy rally came to a shuddering halt on Friday, with a selloff that threatened to derail what had been set to be the server maker’s best week on record.

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While the stock initially rose, it subsequently turned lower to drop as much as 20%, its biggest intraday percentage decline since August. The stock had risen more than 35% this week before Friday’s decline, though it remains on track for a double-digit gain for the week. Should it end the session lower, that would come in the wake of a nine-session run of gains, its longest such streak since 2016.

Despite Friday’s drop, recent gains show how Super Micro has become one of the hottest names in artificial intelligence. The stock has risen in 18 of the past 20 sessions, through Thursday, and has more than tripled this year. That follows a gain of 246% over 2023.

“When things are really ripping like this, it isn’t institutions wanting to hold something as a long-term investment, it is a casino mentality for people playing momentum and taking shots,” said Michael Matousek, head trader at US Global Investors Inc. “I’m sure some people are getting run over trying to short this thing, and while others have probably done well, catching something like this really comes down to luck.”

Total options volume more than doubled the average over the past month – led by newly-created positions in puts expiring Friday. The most active contract protects against a 4% dip by the end of the session. Investors bid up the price of the put throughout the day, signaling added demand for downside protection as the shares slumped.

Along with the rally, Chief Executive Officer Charles Liang has seen his wealth quadruple this year to $7.8 billion, making him the biggest percentage gainer on the Bloomberg Billionaires Index of the world’s 500 richest people.

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“We deliver the best generative AI platform in the world,” Liang said in an…