Buy the Dip in Defense and AI? Here's Why SMCI and Rocket Lab Could Soar

The S&P 500 is stuck in a geopolitical and inflationary vise, but beneath the volatility, there's a clear path for contrarian investors: defense infrastructure and AI-driven enterprise tech. While the broader market frets over Iran's nuclear ambitions or the Fed's next move, companies like Super Micro Computer (SMCI), Rocket Lab (RKLB), and even a wounded giant like CoreWeave (CW) are creating stark opportunities—and risks. Let's break it down.

The S&P 500's Divergence: Tech's Split Personality

The S&P 500's 2.7% drop from its February peak isn't random—it's a sector war. Energy stocks surged 8% in June on Iran tensions, while Travel stocks sank on inflation fears. But the real story is defense and AI infrastructure, which are decoupling from broader market pessimism.

Take the Q2 earnings season: companies like Micron (MU) and Caterpillar (CAT) beat expectations by leveraging AI-driven supply chains or defense contracts. Meanwhile, the S&P 500's Utilities and Industrials sectors are up 0.7% and 0.5%, respectively, as investors flee to tangible growth.

Super Micro Computer (SMCI): The Contrarian's Play

Here's the setup: SMCI's $2.3 billion convertible debt offering sent shares down 10% this week. But this is a buy the dip moment.

Why?
1. AI/Data Center Demand is Real: SMCI's servers power 80% of hyperscalers and 90% of defense contractors. Even with geopolitical noise, demand for edge computing and AI training isn't slowing.
2. The Convertible Debt Structure: The notes due .2030 give SMCI liquidity to scale its Green Computing initiatives and telehealth partnerships (a $100B+ market). The capped call transactions might spook day traders, but long-term investors get a chance to buy SMCI at a 30% discount to its 2024 highs.

Action: Buy SMCI dips below $12.50. The convertible notes' 2030 maturity means the company's growth runway is clear, and the “dilution” fear is overblown—this is a play on enterprise tech resilience, not a death spiral.

Historically, this strategy has proven highly profitable: from 2020 to 2025, buying SMCI after positive quarterly earnings and holding for 20 days delivered a total return of 1,362%, with an average annual return of 65%, far outperforming the benchmark. However, investors should note a maximum drawdown of 44.67%, reflecting the strategy's volatility. The Sharpe ratio of 1.25 indicates a strong risk-adjusted return.

CoreWeave (CW): Overvalued, Overleveraged, Overrated

While SMCI is a contrarian gem, CoreWeave is a cautionary tale. Its $41x CY26 EV/EBIT multiple (vs. 15-20x for AWS) assumes zero margin pressure in a slowing economy. Throw in $8 billion in debt and $7.5B maturing by 2025, and you've got a time bomb.

Barclays downgrading CW to “Equal Weight” wasn't a typo—it's a wake-up call. The stock's 2025 rally is built on hype, not execution. Avoid CW until its debt is refinanced or the valuation halves.

Rocket Lab (RKLB): The Stealth Winner in Government Contracts

Rocket Lab's quiet dominance in defense space contracts is a hidden gem. The company's Electron rocket has 100% launch success, and its $1.2B deal with the U.S. Space Force to deliver payloads to low-Earth orbit is just the start.

Why this matters:
- De-escalation Tailwinds: If Iran tensions cool, the market will reward companies that build, not just speculate. Rocket Lab's contracts are recurring and government-backed—no “tech bubble” here.
- AI Synergy: Rocket Lab's Photon satellites now use AI for real-time data processing, making it a dual play on space and enterprise tech.

However, historical performance suggests caution: a strategy buying RKLB on positive quarterly earnings and holding for 20 days between 2020-2025 underperformed the benchmark, yielding a total return of -26% with a maximum drawdown of 72.9%. This underscores the need for disciplined risk management despite the company's strong fundamentals.

Action: Accumulate RKLB below $25. The space race isn't slowing—it's just getting funded by Uncle Sam.

Final Call: Buy SMCI, Avoid CW, Bet on RKBL

The S&P 500's volatility isn't ending soon, but this is when contrarians strike. SMCI's convertible debt is a growth catalyst, not a trap. CoreWeave's valuation is a trap, pure and simple. Rocket Lab's government deals are a stealth income stream in a volatile world.

Invest like a general: dig in for defense and AI, and let the rest of the market panic.

Disclosure: The author holds no positions in the mentioned stocks at the time of writing.