Sify Applied sciences: Promote Into Ailing-Fated Momentum Rally (NASDAQ:SIFY)

Be aware:

I’ve coated Sify Applied sciences Restricted, or “Sify” (NASDAQ:SIFY), beforehand, so traders ought to view this as an replace to my earlier article on the corporate.

Nearly three months in the past, I suggested traders to take part in a closely discounted rights providing carried out by main Indian ICT options supplier Sify Applied sciences, as the corporate’s rights had been buying and selling nicely under truthful worth at the moment.

In combination, Sify issued roughly 250 million new shares/ADS for gross proceeds of simply $30 million, thus rising the variety of excellent shares/ADS by roughly 135%.

The rights providing brought on the value of the corporate’s U.S.-traded ADS to crater by roughly 75%:

Whereas participation within the rights providing and subsequent sale of the ADS into the open market offered readers with very stable good points, traders with extra persistence had been rewarded handsomely, albeit solely because of Tuesday’s ill-fated momentum rally.

Even with the market experiencing some “AI-fatigue” as of late, the mix of the magic phrases “AI” and “NVIDIA” in a press launch stays ample to draw the momentum crowd to a penny inventory like Sify:

Sify Applied sciences Restricted (NASDAQ: SIFY), India’s main Digital ICT options supplier with international service capabilities spanning information middle, cloud, networks, safety and digital providers, at present introduced it has develop into an NVIDIA colocation associate with the NVIDIA DGX-Prepared Knowledge Heart program, licensed for liquid cooling.

(…)

With the NVIDIA DGX platform and its supporting infrastructure expertise ecosystem, Sify clients now have entry to high-density supercomputing and highly effective efficiency, provided in scalable and versatile AI infrastructure options and accessed by way of an in depth colocation footprint.

The information resulted within the firm’s ADS rallying by near 200% in early buying and selling on Tuesday earlier than pulling again.

The ADS completed the session up by roughly 100% on huge buying and selling quantity:

Because of this, the corporate’s market capitalization elevated by nearly $150 million to $286.5 million.

Whereas there is definitely nothing mistaken with changing into “India’s first DGX-Prepared Knowledge Heart associate licensed for liquid cooling”, different Indian information middle suppliers are prone to comply with go well with, thus mirroring developments in different components of the world:

Please notice that NVIDIA Company (NVDA) will not be in search of unique relationships, however quite to supply clients with a big worldwide community of companions for its quickly rising AI expertise platform DGX.

Keep in mind additionally that NVIDIA’s gross sales in India, whereas rising properly, stay a far cry from the corporate’s home stronghold and main Asian international locations like China and Taiwan.

Within the present fiscal 12 months, revenues in India are anticipated to exceed $500 million, nevertheless not all of those gross sales will likely be datacenter and/or AI-related.

Equally, non-public AI funding in India stays a tiny fraction of main international locations like america and China.

Whereas there is definitely ample room for growth, Sify, now being an authorized NVIDIA DGX associate, will not be prone to have any measurable near-term affect on the corporate’s monetary efficiency.

Please notice additionally that information middle providers represented solely 31% of the corporate’s $427 million in annual revenues in FY2024.

Lastly, with Sify being majority-owned by CEO and Chairman Raju Vegesna, exterior shareholders have little or no choices to forestall extra worth destruction much like the current rights providing.

At the least for my part, there isn’t a justification for Tuesday’s 100% rally, because the certification by NVIDIA will not be prone to have any near-term affect on the corporate’s monetary efficiency.

With momentum merchants prone to depart for assumed greener pastures sooner quite than later, I count on the ADS to provide again most if not all of Tuesday’s good points over the subsequent couple of weeks.

Contemplating this situation, I might advise Sify shareholders to make use of the momentum rally to eliminate present positions.

Dangers

Apparently, the largest threat to my bearish thesis could be a continuation of Tuesday’s momentum rally as extra merchants get attracted by the hype. Nevertheless, with the ADS having completed the session close to day-lows, I might count on the value to maneuver decrease on lowering buying and selling quantity.

Backside Line

The ability of AI has struck once more, as evidenced by Tuesday’s 100% transfer in Sify Applied sciences’ ADS.

Nevertheless, the truth that the corporate has develop into India’s first “NVIDIA DGX-Prepared Knowledge Heart associate licensed for liquid cooling” will not be prone to lead to any measurable near-term advantages to the corporate’s monetary efficiency and definitely doesn’t justify an nearly $150 million enhance in Sify Applied sciences’ market capitalization.

Given this situation, I’m downgrading the corporate’s ADS from “Promote” to “Robust Promote” as I count on the inventory to provide again most if not all of Tuesday’s good points over the subsequent couple of weeks.

Editor’s Be aware: This text covers a number of microcap shares. Please concentrate on the dangers related to these shares.