In a dramatic turn of events, Super Micro Computer (SMCI), one of the favorite names of the artificial intelligence (AI) boom, saw its stock plummet by as much as 25% on Wednesday. The catalyst for this sharp decline was the company’s announcement that it would delay filing its Annual Report on Form 10-K for the fiscal year ended June 30, 2024.
This unexpected development comes hot on the heels of a scathing report by short seller Hindenburg Research, which alleged “accounting manipulation” among other improprieties at the high-flying AI server manufacturer. The timing of these events has left investors and market watchers scrambling to make sense of the situation.
Super Micro cited the need for additional time to complete its assessment of internal controls over financial reporting as the reason for the delay. The company stated, “SMCI is unable to file its Annual Report within the prescribed time period without unreasonable effort or expense,” raising eyebrows across Wall Street.
The tumult marks a stark contrast to Super Micro’s recent fortunes. The company had been riding high on the AI wave, with its stock price skyrocketing 313%, from $290 in early January to a peak of around $1,200 by March. This meteoric rise had earned SMCI a coveted spot in the S&P 500 index in March and subsequently in the Nasdaq 100 index in July.
However, the current setback has erased a significant portion of those gains. While still up 50% year-to-date, Super Micro’s stock has now retreated more than 60% from its March zenith. The company’s recently announced 10-for-1 stock split, set to take effect on October 1, now seems overshadowed by these unfolding events.
Hindenburg Research’s report, which triggered a 2% stock dip on Tuesday, painted a troubling picture of Super Micro’s business practices. The short seller’s three-month investigation claimed to have uncovered “glaring accounting red flags, evidence of undisclosed related party transactions, sanctions and export control failures, and customer issues.”
Perhaps most damning were allegations that despite a $17.5 million settlement with the SEC in August 2020 over “widespread accounting violations,” Super Micro’s practices remained questionable. Hindenburg asserted that senior executives who had departed amid the earlier scandal were subsequently rehired, quoting a former salesperson who claimed, “Almost all of them are back. Almost all of the people that were let go that were the cause of this malfeasance.”
The report further alleged that pressure to meet quotas led to questionable sales practices, including channel stuffing and shipping defective products around quarter-end. Hindenburg’s stark conclusion labeled Super Micro as a “serial recidivist.”
These allegations strike at the heart of Super Micro’s business model, which involves purchasing components from AI chipmaker Nvidia (NVDA) to produce data center servers and management software. The company’s close ties to the AI industry had previously been seen as a strength, but now threaten to become a liability if the allegations prove true.
As the market digests these developments, questions loom large about Super Micro’s future. Will the company be able to file its annual report promptly and address the concerns raised by Hindenburg? How will these events impact Super Micro’s standing in the AI server market? And perhaps most crucially, can investor confidence be restored in the wake of these allegations?
The coming weeks will be critical for Super Micro as it navigates this storm. The tech industry and Wall Street alike will be watching closely to see how this once-highflying AI player responds to these challenges and whether it can regain its footing in an increasingly scrutinized market landscape.
Price Action
As of the latest update, SMCI shares were down by more than 136 points, or 24.88%, trading at $411 & change per share.
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