On Friday, Nvidia (NVDA) fell by 10% and Super Micro Computer (SMCI) by about twice that. As I’m writing this, NVDA has gained almost all of that back and SMCI around half.

The reason for last week’s fall? Two, I think. The first is that both stocks have been exceptionally strong so far this year, making them prime candidates for profit-taking. Also, if press reports are correct, SMCI neglected, for the first time, to give a preliminary idea of upcoming quarterly earning in its Friday news release. Given the speed/depth of the decline, I’d imagine trading bots led the retreat.

SMCI is an assembler of high end computers, which is normally a low PE multiple business. But it is the first firm (no longer the only, but the first) to work with NVDA to build machines that get optimal performance out of NVDA chips. And, of course, you buy an SMCI machine and you get an advanced NVDA chipset. So I imagine that price is a secondary consideration.

Therefore, the bots must have thought, bad news for SMCI is also bad news for NVDA.

On the other hand, since SMCI just finished raising over $3 billion from convertible and common stock issues in March (the last month of the quarter). So it would be super-weird for the company not to have mentioned any business weakness to potential buyers. It could easily be, too, that the company’s lawyers told management not to say anything in Friday news release that wasn’t in the prospectuses.

Three thoughts:

–this is the investment world we live in today, with bots reacting potentially violently to the news feeds they read. We human investors all have to decide whether, and how, to try to take advantage of apparent bot mistakes

–both SMCI and NVDA have been exceptionally strong so far this year, so profit-taking had to be expected sometime

–Nvidia is reported to be now collaborating with other computer system vendors, so at some point the link between NVDA and SMCI may not be as strong as it is now. So arguably SMCI weakness won’t be a harbinger of the same for NVDA