Be Wary of Super Micro Computer Stock Unless This Happens

Core Viewpoint - Super Micro Computer (Supermicro) faces significant existential challenges that have led to a dramatic decline in its stock price, despite previous high growth rates and market enthusiasm for AI-related stocks [1][3][14]. Financial Performance - Supermicro's revenue increased by 46% in 2022 and 37% in 2023, with analysts projecting a remarkable 110% growth for 2024, primarily driven by a surge in shipments of dedicated AI servers [2]. - The company's stock reached a record high of $118.81 on March 13, reflecting a 5,080% gain over four years, but has since plummeted to around $23, trading at 7 times forward earnings and less than 1 times next year's sales [1][3]. Stock Decline Reasons - The stock price dropped nearly 80% due to past issues, including a delisting from Nasdaq in 2018 following an SEC investigation into improper revenue booking, with a subsequent relisting in 2020 after a settlement [4]. - Recent allegations from Hindenburg Research suggested that Supermicro inflated its revenue again, leading to management's delay in filing its annual 10-K report for fiscal 2024 [5][6]. Audit and Regulatory Issues - Ernst & Young, the company's auditor, resigned, indicating it was "unwilling to be associated" with Supermicro's financial statements, raising concerns about the reliability of past financial reports [6][11]. - The Department of Justice has initiated a new investigation into Supermicro, compounding the regulatory challenges the company faces [10]. Potential Consequences - Failure to file the 10-K by November 16 could result in delisting from Nasdaq again, triggering immediate liabilities for $1.725 billion in convertible notes, which could severely impact liquidity and operational capabilities [7][8]. - Supermicro's top supplier, Nvidia, is reportedly reallocating GPU orders to competitors, and customers may shift their AI server orders to other companies like Dell and Hewlett Packard Enterprise [9]. Investment Outlook - The company is deemed uninvestable until it resolves its accounting issues, secures a new auditor, and files its 10-K, as the current situation raises significant doubts about its financial health and future prospects [11][14]. - Analysts' optimistic long-term expectations cannot be trusted until the company addresses its existential challenges and stabilizes its operations [13].