Super Micro Computer (SMCI) shares rose more than 6% on Monday, recouping some of last week’s heavy losses after the server and data storage company reported its fourth-quarter results.

In its latest quarterly results, released after the market closed on Tuesday, the server maker reported that revenue more than doubled from a year earlier, beating analysts’ revenue forecasts. However, earnings fell short of expectations and Supermicro shares plunged 20 percent the next day.

Supermicro sees path to margin recovery

Although Supermicro forecast continued revenue growth, rising costs contributed to a decline in margins that appeared to underpin the negative reaction to the earnings report. Analysts at Bank of America downgraded the stock to “neutral” and said they expect margins to remain low in the coming quarters.

In its earnings call, Supermicro attributed the decline in gross margins to product mix, competitive pricing to secure new design orders, and increased start-up costs associated with increased production of direct liquid-cooled (DLC) technology for clusters of graphics processing units used in artificial intelligence (AI) data centers.

The company believes that by increasing DLC ​​production, it can reduce manufacturing costs and thus drive margin recovery.

Liquid cooling technology on growth path

In addition to the company’s claim that the preliminary cost problems are likely to be temporary, a report in The Wall Street Journal suggested that Supermicro’s investment in liquid cooling technology could pay off. The article highlighted liquid cooling as a “novel method” to help AI data centers without relying as heavily on energy-intensive air conditioning.

According to the report, Supermicro shipped more than 1,000 liquid-cooled AI racks in June and July, and about 30 percent of the server racks the company ships next year will have liquid cooling.

Share price development

After last week’s losses and Monday’s rebound, Supermicro shares have gained nearly 90% so far in 2024.