Super Micro Computer’s Stellar Start to the Year Hits a Speed Bump
The tech giant Super Micro Computer (NASDAQ: SMCI) was on a roll, with its stock skyrocketing 188% in the first half of the year, outperforming even market favorite Nvidia. The company’s impressive earnings growth, driven by demand from artificial intelligence (AI) customers, earned it a spot in both the S&P 500 and the Nasdaq-100. With the AI market expected to balloon from $200 billion to $1 trillion by the end of the decade, the future looked bright. However, recent news has cast a shadow over the company, causing its stock to plummet nearly 30% since late August.
A short report by Hindenburg Research, published on August 27, alleged “accounting red flags” and “export control failures” among other issues. Notably, Hindenburg has a short position in Supermicro, which means it stands to gain from a decline in the stock price. Supermicro responded, calling the claims “false or inaccurate,” and promised to address them in due course.
Around the same time, Supermicro announced it was delaying the filing of its 10-K annual report, sparking concerns about potential changes to earnings figures. However, the company reassured investors that it didn’t expect significant adjustments to its fourth-quarter or full-year numbers.
Just this past week, The Wall Street Journal reported that the Justice Department had launched a probe into Supermicro, citing people familiar with the matter. The investigation is still in its early stages, and Supermicro and the U.S. attorney’s office declined to comment. This news sent Supermicro shares tumbling 12% in a single trading session.
So, is this top AI equipment maker in trouble, or is this a buying opportunity? It’s essential to separate fact from fiction and take a long-term view. A Justice Department probe doesn’t necessarily imply wrongdoing, and even if issues are found, it wouldn’t necessarily spell disaster for the company. Supermicro’s solid track record of earnings growth, high-demand products, and the AI market’s growth potential suggest a bright future.
For shareholders, it’s crucial to avoid panic selling and focus on the facts. If you’re not yet a shareholder, consider waiting until the current issues are resolved before buying. While aggressive investors might see this as a good time to pick up shares, most investors would be better off waiting for clarity. With Supermicro trading at around 11x forward earnings estimates, it’s a relatively cheap growth stock, but caution is advised until the clouds lift.
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