A Cautionary Tale of Super Micro Computer’s Downfall
From Record Highs to Rock Bottom
Super Micro Computer, a leading maker of high-end servers, was once the darling of the AI stock market. In March, its shares reached a record high of $118.81, representing a staggering 5,080% gain over the previous four years. However, as of now, the stock trades at a mere $23, making it seem like a dirt-cheap bargain. But beware, there’s more to this story than meets the eye.
A History of Accounting Issues
In 2018, Super Micro was delisted from Nasdaq due to an investigation by the Securities and Exchange Commission (SEC) into improper revenue booking practices. Although the company was relisted in 2020 after reaching a settlement with the SEC, its troubles didn’t end there. This August, short-seller Hindenburg Research accused Super Micro of inflating its revenue again, which management denied. However, the company subsequently delayed its annual 10-K filing, citing the need to assess its internal controls over financial reporting.
Auditor Resignation and Delisting Threats
In October, Ernst & Young, Super Micro’s auditor, resigned, stating it was “unwilling to be associated” with the company’s financial statements. If Super Micro fails to submit its 10-K filing by November 16, it risks being delisted again, which would trigger an immediate liability of $1.725 billion in convertible notes. This could drain the company’s coffers and make it difficult to purchase high-end GPUs for its AI servers.
Regulatory Headwinds and Customer Exodus
To make matters worse, the Department of Justice has reportedly launched a new investigation into Super Micro. This could further complicate the company’s efforts to resolve its accounting issues and delisting threats. Meanwhile, top supplier Nvidia is diverting GPU orders to competitors, and customers may shift their AI server orders to Dell, Hewlett Packard Enterprise, or other leading AI server makers to avoid Super Micro’s potential meltdown.
A Bright Red Flag
Ernst & Young’s departure raises a bright red flag, as it’s unlikely that another major accounting firm will step in to fill the void. Without an audited 10-K filing, the reliability of Super Micro’s past financial statements is uncertain. Unless the company resolves its problems, it’s difficult to put faith in analysts’ rosy long-term expectations.
Beware of the Discount Valuation
While Super Micro’s stock may seem undervalued, it deserves its discount valuation until it secures a new auditor, submits its 10-K filing, stays listed on the Nasdaq, and allays investors’ concerns about the Justice Department investigation. Until then, it’s wise to exercise caution and avoid Super Micro Computer’s beaten-down stock.
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