One big tech stock could profit from Super Micro’s disaster
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Super Micro’s troubles are mounting.
It all began this summer when short-selling investor Hindenburg Research released a report on Aug. 27, alleging accounting manipulation and undisclosed related-party transactions by Super Micro (SMCI) . The report also highlighted potential violations of export controls.
Following these allegations, Super Micro announced on Aug. 28 that it would delay filing its annual report to assess its internal controls over financial reporting. This delay further raised investor concerns about the company's financial transparency.
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The stock took a steep dive. The combined impact of Hindenburg's report and Super Micro's delayed filing triggered a sharp sell-off, sending Super Micro shares plummeting by nearly 20% on Aug. 28.
But it was not the end of the tumble. The stock fell another 33% on Oct. 30 after its auditor Ernst & Young resigned, saying that it was “unwilling to be associated with the financial statements prepared by management.” SMCI lost 12% and 10.5% on Oct. 31 and Nov. 1, respectively.
Super Micro CEO Charles Liang responded to the Hindenburg Research accusation by stating that the report contained "false or inaccurate statements."
Super Micro also said its board formed a special committee to investigate Ernst & Young's concerns. After a three-month review, the committee found "no evidence of fraud or misconduct" by management. The company is now hiring a new auditor.
But it still can’t predict when it will file its delayed 10-K annual report, which was supposed to be due on Aug. 29. The deadline is Nov. 16.
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What does Super Micro Computer do?
Super Micro Computer’s AI server solutions are used in diverse industries such as healthcare, retail, and manufacturing. The business saw a boom as its servers are packed with Nvidia’s graphic processing units, or GPUs, ideally suited for training and running AI programs like OpenAI's ChatGPT or Google's Gemini.
For the quarter ending Sept. 30, Super Micro reported adjusted earnings per share of 75 to 76 cents, slightly above analysts' estimate of 73 cents. Revenue came in at $5.9 billion to $6 billion, which fell short of analyst expectations of $6.45 billion but is still up 181% year-over-year.
Super Micro noted during its earnings call that Nvidia has not adjusted its GPU allotment to customers.
Related: Analysts update Super Micro stock price target after shocking disclosures
“We have the deepest of relationships with Nvidia,” CFO David Weigand said. “Now we have multiple state-of-the-art projects in progress, and we’ve spoken to Nvidia, and they’ve confirmed they’ve made no changes to allocations.”