Super Micro investors have seen the company’s stock nosedive this week, dropping another 10% on Friday, capping a staggering 44% sell-off over the past week. This plunge follows the sudden resignation of the company’s second auditor in under two years and growing concerns over a Department of Justice (DOJ) investigation into the company’s accounting practices and business relationships.
A Dramatic Decline from Market Peak
The once high-flying Super Micro, which had quadrupled in value by March this year and briefly joined the S&P 500, is now struggling to stay afloat. After peaking at $118.81 in March, the stock has plummeted to as low as $26.01, erasing all its gains for 2024 and wiping out roughly $55 billion in market capitalization. Analysts now speculate whether Super Micro can avoid delisting from the Nasdaq if it fails to address mounting regulatory concerns.
Regulatory Scrutiny and Auditor Departures Trigger Investor Panic
Super Micro’s troubles began in August when the company announced a delay in filing its annual report with the SEC, citing unspecified issues. The move drew the attention of Hindenburg Research, a noted short-selling firm, which quickly published a report accusing Super Micro of potential “accounting manipulation.” The Wall Street Journal later reported that the DOJ had opened a preliminary investigation into the company’s finances.
Adding to the turmoil, Super Micro announced this Wednesday that Ernst & Young had resigned as its auditor, just 17 months after replacing Deloitte & Touche. In a statement, Ernst & Young said it was “unwilling to be associated with the financial statements prepared by management.” In response, a Super Micro spokesperson stated the company “disagrees with E&Y’s decision to resign” and assured stakeholders that it would seek new auditors swiftly. Super Micro claims the concerns raised by Ernst & Young will not require restating past financial results, but the company has yet to address many specific allegations publicly.
Investor Concerns Worsen Amid DOJ Probe and Nasdaq Warnings
The situation escalated on Thursday when Argus Research downgraded Super Micro stock to a “hold” rating, citing multiple red flags, including the DOJ investigation, the Hindenburg allegations, and the recent departure of its accounting firm. Argus analysts raised particular concerns over Super Micro’s possible dealings with entities under U.S. sanctions. “The DOJ’s concerns, in our view, may be mainly about related-party transactions and about SMCI products ending up in the hands of sanctioned Russian companies,” the analysts noted in their report.
In September, Nasdaq issued a compliance warning due to Super Micro’s filing delay, giving the company until mid-November to submit its report or risk delisting. The company now faces a critical deadline, with pressure mounting to file its report or offer a compliance plan.
Record Revenue Growth Overshadowed by Financial Uncertainty
While Super Micro’s regulatory troubles dominate headlines, the company’s core business has shown remarkable growth. In an August presentation, the company reported revenue growth of over 200% year-over-year, marking the third consecutive quarter of doubled revenues. Analysts estimate Super Micro’s fiscal first-quarter revenue, ending in September, hit $6.45 billion, a jump from $2.1 billion in the same quarter a year ago, driven largely by server sales equipped with Nvidia AI processors.
Uncertain Future as Investors and Analysts Await Updates
Super Micro has scheduled a business update for Election Day, which many expect will address the recent setbacks and provide clarity on the company’s path forward. However, market watchers remain skeptical. Despite assurances from Super Micro, analysts and investors are wary that the unresolved issues could lead to lasting reputational and financial harm.
In the meantime, the company’s near-term future remains precarious. With looming Nasdaq deadlines and significant questions over its financial practices, Super Micro’s prospects are increasingly uncertain, and investors are watching closely to see how the company will navigate this high-stakes period.
