World Stock Watch

Trouble Brewing at Super Micro Computer

A Scandal Unfolds

Shares of Super Micro Computer, a leading artificial intelligence (AI) server company, have plummeted amidst a growing scandal that has engulfed the business. The company’s troubles began on August 27, when a short-seller report accused Super Micro of accounting manipulation, self-dealing, sanctions evasion, and channel stuffing.

A Timeline of Events

• August 28: Super Micro files notice that it’s unable to submit its 10-K in a timely manner, citing the need to complete its assessment of internal controls over financial reporting.
• September 3: The company sends a letter to customers and partners, reasserting that it doesn’t anticipate material changes to its fiscal 2024 results and calling the short-seller report false and inaccurate.
• September 20: Super Micro receives a letter from Nasdaq, stating that it’s out of compliance due to its late 10-K filing.
• September 26: The Wall Street Journal reports that the Justice Department is investigating Super Micro Computer, allegedly in response to accusations from a former employee about accounting violations.
• October 30: Supermicro’s auditing firm, Ernst & Young (EY), resigns, citing concerns about the company’s financial reporting.
• November 5: Supermicro reports preliminary fiscal 2025 first-quarter earnings, missing estimates and sending the stock tumbling further.

A Cloud of Uncertainty

The company’s troubles are far from over. With its auditing firm gone and a possible DOJ investigation looming, Supermicro’s financial reporting is under intense scrutiny. The company still has no timeline for filing its 10-K, and its inability to resolve the matter in over two months suggests that this may be more than a simple procedural error.

Consequences of Inaction

Until management provides more transparency and takes concrete steps to regain compliance, investors should exercise caution. The stock has already fallen over 50% since the release of the Hindenburg report, and it has lost 80% of its value from its all-time high in March. If Supermicro fails to address its problems, it risks being delisted from the Nasdaq, which would further damage its reputation with investors.

A Call to Action

It’s time for management to come clean with investors and stop obfuscating. With its most important supplier, Nvidia, reportedly redirecting its in-demand chips to other server companies, Supermicro’s business is at risk of spiraling out of control. The company needs to act swiftly to restore trust with its customers and investors before it’s too late.