The developments surrounding Super microcomputer (NASDAQ: SMCI) have become some of the most fascinating chapters in the broader story of artificial intelligence (AI).
At its peak, shares of Supermicro rose more than 300% earlier this year. However, starting in August, stocks began a prolonged sell-off of epic proportions.
It’s been a series of falling dominoes for Supermicro in recent months. But what if I told you that better days could be on the horizon?
I’m going to describe everything that’s happening at Supermicro and explain why the stock went into freefall. More importantly, I’ll also explore why Supermicro could be on the verge of a turnaround, and what that could mean for investors.
There have been so many ongoing storylines at Supermicro in recent months that it’s really hard to keep up with all the hoopla. Below is an annotated timeline of every speed bump Supermicro has encountered, and some details on the stock’s movement as a result.
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August: In late August, Hindenburg Research published a report on accounting malpractice protocols at Supermicro. Within one trading day after Hindenburg’s report became public, Supermicro’s shares plunged 19%. This was the first domino to fall. Exactly one day after the Hindenburg report was released, Supermicro filed an 8K announcing that the company “expects to file a notice of late filing” for its 10K annual report.
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September: About a month after the Hindenburg piece, The Wall Street Journal reported that the Department of Justice (DOJ) was investigating Supermicro for its accounting controls, following a series of whistleblower allegations. The Nasdaq stock exchange committees also sent Supermicro a notice explaining that the company was at risk of being delisted for compliance reasons.
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October: On October 30, it was announced that Big Four accounting specialist Ernst & Young LLP (“EY”) resigned as Supermicro’s accountant.
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November: Reports about this started circulating in mid-November Nvidia was diverting some of its Blackwell order flow away from Supermicro. To add some context, Supermicro specializes in the architecture for servers and storage clusters that house Nvidia’s graphics processing units (GPUs). With Blackwell expected to play a major role for Nvidia, Supermicro was well positioned to benefit from the huge tailwinds surrounding these GPUs.
While accounting fraud is a serious allegation, I would caution investors not to hit the panic button. It’s important to keep in mind that short sellers like Hindenburg have a vested interest in seeing the stock price fall. Furthermore, in light of all these obstacles in the road, Supermicro has taken some respectable steps to address the issues head-on and address them appropriately.
In late November, Supermicro announced the appointment of a new accounting firm, BDO USA, PC. In the same press release, management also announced that the company had filed a compliance plan with the Nasdaq to avoid delisting.
In early December, investors received positive news when the Nasdaq granted Supermicro’s “request for an exception” to remain listed on the exchange through February 25, 2025. If Supermicro doesn’t submit its 10K by then, the company will once again be out of compliance. .
Another announcement from earlier this month involved a Special Committee formed by Supermicro’s Board of Directors. According to the internal investigation, the Special Committee determined that the dismissal of the Company’s former registered public accounting firm, Ernst & Young LLP (“EY”) and the conclusions EY stated in its resignation letter were not supported by the facts contained in the research were examined. .”
On the surface, it appears that Supermicro is finally regaining some momentum, and management’s proactive steps could very well put the company on a path to turn things around.
As the chart below shows, Supermicro’s price-to-earnings (P/E) ratio of 12.9 is a far cry from its previous highs during the year and is essentially hovering around a low. The current valuation picture, combined with some of the positive news outlined above, might lead you to think Supermicro is an absolute bargain right now.
However, I think drawing such a conclusion is more in line with a ‘pigs are slaughtered’ mentality.
There are a lot of moving variables at Supermicro, and right now I think just about any news item (positive or negative) could cause the stock to move.
For me, there are just too many unknowns surrounding Supermicro at the moment. Investing in stocks is similar to throwing a dart at the wall or tossing a coin; it’s just not for the faint of heart and is best avoided for now.
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Adam Spatacco has positions at Nvidia. The Motley Fool holds positions in and recommends Nvidia. The Motley Fool has a disclosure policy.
This struggling stock in artificial intelligence (AI) could be about to take off. Here’s why. was originally published by The Motley Fool
