Super micro computer (NASDAQ: SMCI) He started the year as a star in the AI market. The equipment maker has been around for more than 30 years, selling servers and carrier bandwidth solutions, but has already seen profits increase as artificial intelligence (AI) booms. In recent quarters, Supermicro has reported triple-digit increases in revenue and high demand for its products. The company works together with Nvidia and other major chipmakers, and integrating their innovations into their equipment.
All of this helped the stock rise 2,000% over the past five years through 2023, and even outperformed Nvidia in the first half of this year, rising 188%. Then, in late August, problems began to weigh on this blue-chip stock. From a short report alleging problems at the company to the recent resignation of Supermicro’s auditor, these have been difficult times for Supermicro and its investors. Since the August 27 short report, the stock has fallen about 60%.
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More news arrived this week, as Supermicro released a preliminary, unaudited quarterly earnings report and general update. Here’s what you need to know before making any investment decisions.
First, let’s think about the elements that affected the stock. It all started with a short report from Hindenburg Research, alleging problems at the company such as “glaring red flags related to accounting.” Since it was Hindenburg Short position In the stock at the time of reporting, meaning he would benefit from declines in the stock, he was biased. This makes it impossible to rely entirely on Hindenburg as a source.
Meanwhile, Supermicro delayed the filing of its 10K annual report. This may not be an obvious reason to sell or avoid the stock, but it still weighs on investors’ minds.
Supermicro addressed both the Hindenburg report and the 10K delay in a letter to customers, offering encouraging words. Regarding the short report, Supermicro called the data “false or inaccurate,” and regarding the 10,000 delay, the company said it does not expect any significant changes to Q4 or full-year earnings.
But investors’ fears deepened when an article was published The Wall Street Journal Supermicro talked about a potential Justice Department investigation into Supermicro — Supermicro declined to comment — and when Ernst & Young resigned as Supermicro’s auditor.
Ernst & Young said in its resignation that it “will no longer be able to rely on the representations of management and the audit committee” and that it is “unwilling to be associated with the financial statements prepared by management.”
Now, let’s get to the update from Supermicro. Ernst & Young initially expressed concerns about internal controls in July, and Supermicro’s board formed an independent committee to review the situation. This special committee completed its investigation and issued a statement during Supermicro’s earnings report this week, stating that “the Audit Committee acted independently and that there is no evidence of fraud or misconduct on the part of management or the Board of Directors. The committee is to recommend a series of remedial actions for the Company to advance its missions.” Its governance and internal control (.)”
Meanwhile, Supermicro says it continues to work on the 10-K, but can’t yet predict when the report will be ready. This is worrying because the company has faced delisting risk before Nasdaq If you do not submit the report or provide a plan to address the situation later this month. Supermicro received a letter of non-compliance from Nasdaq in September.
Meanwhile, turning to unaudited fiscal first-quarter earnings, the company says it expects net sales of $5.9 billion to $6 billion, down from previous guidance of $6 billion to $7 billion. This still represents a three-digit gain year-on-year – and Supermicro’s work with partners and its progress at a new production center in Malaysia is going smoothly.
The company says it expects its direct liquid cooling (DLC) market share this fiscal year to be at least 10 times larger than it was last year as the AI market takes over the technology that cools data systems and data centers. Supermicro says the Nvidia GB200 NVL72, a Blackwell-powered rack scale solution, is “ready,” and that the company Advanced micro devices‘MI300 and MI325 platforms Intel Gaudí’s 3 solutions are also.
Although there are reports about Nvidia Convert its orders As for other vendors, Supermicro said during its call with analysts that there were “no changes to allocations.”
Finally, the Malaysian facility, expected to open later this quarter, will help Supermicro increase volume and reduce costs – good news for profit margins.
Given all this, what should investors do? Supermicro has become a leader in its industry in recent years, and the company may continue to thrive in this high-growth environment once it navigates these difficult waters. But despite this positive point, it is impossible to paint a clear picture of the future when there are questions about internal controls and financial reporting. Before investing in a company, it is very important to trust the management and understand the financial situation of the company.
This means that investors cannot invest wisely in Supermicro right now – no matter how promising the market and the company’s technology are. But that doesn’t mean you should completely forget about this AI giant. Instead, it’s best to monitor how this story develops and make investment decisions only when all the facts are in place.
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Adria Cimino He has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Intel, and Nvidia. The Motley Fool recommends the following options: Short November 2024 $24 calls on Intel. The Motley Fool has Disclosure policy.
Super Micro Computer stock fell 60% on the troubling news. Here’s what you need to know after the company’s latest update. Originally published by The Motley Fool