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Supermicro (SMCI), a prominent player in the GPU-as-a-Service sphere and a leading retailer of liquid-cooled AI server racks, is down around 7 percent today as the specter of further dilution takes hold.
To wit, Supermicro has now announced that it intends to raise at least $2 billion by offering its convertible senior notes to eligible investors. The initial purchasers of these notes, which become due in 2030, will also receive an option to buy another $300 million worth of convertibles, bringing Supermicro's total potential haul to around $2.3 billion.
In what is a critical tidbit, these notes will carry a premium of between 32.5 and 37.5 percent, as per a report by Bloomberg. For the benefit of those who might not be aware, a conversion premium refers to the extra amount that investors pay for the right to convert a particular note into equity shares. Essentially, this is the difference between a company's current share price and the conversion price of the notes.
So, if Bloomberg's reporting pans out, Supermicro will offer its convertible notes at a conversion price of between $55 and $57.5, assuming SMCI's current share price of $41.8 holds through the deal negotiation phase.
Do note that Supermicro will use $200 million from the proceeds to finance capped call transactions, which involve a company buying call options - which are typically subject to a cap - on its own shares and are used to limit the extent of the ensuing dilution.
Despite this capped call clause, investors appear perturbed by the specter of dilution in Supermicro shares, as is evidenced by the current 7 percent decline in the stock price.
This comes as Supermicro's CFO, David Weigand, recently liquidated 67,000 shares, equivalent to 43 percent of his erstwhile share holdings, at an average price of $44.02 per share.
As we had noted at the time, an elevated level of insider selling is often indicative of management's internal calculus that a company's share price might be elevated. In light of today's price action in Supermicro shares, that calculus stands vindicated.
Meanwhile, Supermicro has now inked a "multi-year partnership agreement" with DataVolt, a leading Saudi data center company.
According to Goldman Sachs, the deal could feasibly entail $5 billion in annual revenue and an annual EBIT of around $200 million for Supermicro, based on an assumed contract period of 5 years and a built-in margin of around 5 percent.
Update:
Supermicro has now priced its convertible notes at a premium of 35 percent:
"The Convertible Notes will have an initial conversion rate of 18.1154 shares of the Company's common stock per $1,000 principal amount of Convertible Notes (which is equivalent to an initial conversion price of approximately $55.20 per share of the Company’s common stock, representing an initial conversion premium of approximately 35.0% above the closing price of $40.89 per share of the Company’s common stock on June 23, 2025)."
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