Super Micro Computer Shares Fall Again on Latest Update. Is the Bottom In, or Is There More Downside Ahead for the Stock?

By Investor Empires On Nov 9, 2024

shares Super micro computer (NASDAQ: SMCI) It fell again after the company provided investors with an update on its first-quarter financial results, as well as its current audit and filing process. Supermicro was a big winner early in the year, with its shares quadrupling during the first three months of 2024. However, its shares are now firmly in negative territory year to date after this latest decline.

Let’s take a closer look at Supermicro’s latest successes and consider what investors should do with the stock.

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In an update to investors, Supermicro said it now expects its fiscal first-quarter sales to be between $5.9 billion and $6.0 billion. Previous guidance was for revenue to range between $6 billion and $7 billion. Despite the obvious disappointment, it’s worth noting that the company generated revenue of $2.1 billion last year. So, even with lower expectations, revenue will still nearly triple year over year.

Supermicro is now looking for adjusted earnings per share (EPS) to be in the range of $0.75 to $0.76, down from its previous guidance range of $0.67 to $0.83. That would be up from $0.34 a year ago when adjusting for the previous 10-for-1 stock split.

Gross marginsEquity, which was a big problem for the company last quarter when it fell to 11.2% from 15.5% in the third fiscal quarter and 17% a year ago, was expected to reach 13.3%. This is a sequential improvement that brings it back closer to its historical range of 15% to 17%. However, this is largely a low-margin business. Chip companies like Nvidia and Broadcom It has gross margins closer to 75%.

Looking to the fiscal second quarter, Supermicro expects revenue to range between $5.5 billion to $6.1 billion, with adjusted earnings per share between $0.56 to $0.65. A year ago, the company reported fiscal second-quarter sales of $3.66 billion and adjusted earnings per share of $0.56.

Regarding its accounts, Supermicro said that the special committee it formed did not find any evidence of fraud by management, but it would issue some remedial measures to help the company strengthen its governance and internal control functions. However, the company is unable to say when it will file its 10K annual report, which was scheduled to be filed on August 29.

With the company currently unable to file its annual report, the stock is at risk of being delisted before Nasdaq. The exchange sent a letter of non-compliance to Supermicro on September 17, and it has 60 days to file or submit a plan to regain compliance. Right now, the stock appears to be at serious risk of being delisted, given that the company currently does not have an auditor following the recent resignation of Ernst & Young.

Supermicro was previously delisted in 2019 after being unable to file its annual report in time over accounting issues, before relisting in 2020. If its shares are delisted again, the stock will then be traded over the counter (OTC). market. Delisting may also mean that the stock will be delisted Standard & Poor’s 500which she recently joined.

Image source: Getty Images.

Supermicro is a real company that has benefited greatly from… Artificial Intelligence (AI) Infrastructure boom. However, there are currently a lot of questions surrounding its accounts, with the resignation of its auditor, and the SEC previously found guilty of channel stuffing.

Aside from potential accounting issues, the only big risk the company faces is if the shadow this casts over it leads to customers looking to do business elsewhere. Although AI infrastructure is being leveraged, it is in a low-margin business that has a lot of competition.

According to a report from DigiTimes AsiaNvidia stepped in and shifted orders away from Supermicro due to the cloud surrounding the company. If suppliers and customers decide to do less business with Supermicro, it will likely impact the company much more in the long run than a fine imposed by the government.

While investors might consider taking a prospectus on the stock given how beaten down it is, I think it’s best to stay on the sidelines given all the uncertainty and risk surrounding the stock. There are better ways to play building AI infrastructure.

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Jeffrey Seller He has no position in any of the stocks mentioned. The Motley Fool has positions on and recommends Nvidia. The Motley Fool recommends Broadcom. The Motley Fool has Disclosure policy.

Super Micro Computer shares are falling again after the latest update. Is the bottom in place or is there more downside ahead for the stock? Originally published by The Motley Fool