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Shares of Super Micro Computer (SMCI) have taken investors on a roller coaster ride over the last 20 months. Between January 2023 and March 2024, shares of the artificial intelligence (AI) server specialist surged a whopping 1,350%.
Today, SMCI stock trades 68% below all-time highs, valuing the company at a market cap of $21.6 billion.
Let’s see what has impacted Super Micro stock in recent months, and whether SMCI can stage a comeback in the last quarter of 2024.
Hindenburg Research Targets Super Micro Computer
Last month, noted short-seller Hindenburg Research took aim at Super Micro Computer and accused the company of accounting violations, undisclosed related party transactions, sanction and export control failures, and customer issues.
Hindenburg noted that Super Micro was temporarily delisted from the Nasdaq in 2018 after it failed to file financial statements. In August 2020, the SEC charged Super Micro with accounting violations related to improperly recognized revenue totaling $200 million and understating its expenses, which resulted in artificially elevated sales and earnings.
The regulator fined Super Micro $17.5 million. However, Hindenburg claims that Super Micro rehired all the top executives involved in the accounting scandal less than three months after paying the fine. Soon after, the short seller claims the company once again circumvented internal accounting controls and restarted improper revenue recognition practices.
Just after Hindenburg published this scathing report, Super Micro announced a delay in filing its 10-K annual report for fiscal 2024 (which ended in June). At the same time, Super Micro maintained that the Hindenburg report was false or inaccurate.
Investment Banks Downgrade Super Micro Stock
Prior to the short report, Bank of America (BAC) downgraded Super Micro stock from “buy” to “neutral” earlier in August, as the firm expects profit margins to remain under pressure despite strong sales. While Super Micro has increased its sales from $3.3 billion in fiscal 2020 to $14.94 billion in fiscal 2024, its gross margins have narrowed from 15.8% to 14.1% in this period as it wrestles with competition from Dell Technologies (DELL) and Hewlett Packard Enterprise (HPE).
Notably, SMCI's gross margins touched a record high of 18% in fiscal 2023, while Bank of America noted that gross margins in Q4 of 2024 stood at 11.3%, much lower than its estimates of 13.6%. Its narrowing margins were attributed to ramp costs related to liquid cooling and higher sales of lower-margin hyperscale products.
Following the late-August short-seller news, SMCI has been targeted by quite a few more negative notes. Most recently, Barclays downgraded SMCI to “equal-weight” from “overweight,” citing the lack of visibility on internal controls, falling margins, higher working capital requirements, and a weak competitive positioning. Barclays cut its price target on SMCI stock from $693 to $438, based on its forward earnings multiple of 12x.
And notably, JPMorgan (JPM) last week also lowered its rating on SMCI stock from “overweight” to “neutral” and reduced its price target by $450 to $500 per share - representing a stark reversal from the brokerage firm, which initially defended Super Micro stock against Hindenburg's short-seller report.
What's the Analyst Forecast for SMCI Stock?
Out of the 12 analysts covering SMCI stock, four recommend “strong buy,” seven recommend “hold,” and one recommends “strong sell.” The average target price for the tech stock is $851.21, indicating an upside potential of over 118%.
Super Micro Computer has stated that the delay in filing its annual report will have no material impact on its financials. If there is no evidence of accounting manipulation, the ongoing pullback offers investors an opportunity to buy the dip on a growth stock that is part of the AI race.
Priced at 17.5x trailing earnings, SMCI stock is very cheap, given its adjusted earnings are forecast to expand by 62.4% annually in the next five years.
On the date of publication, Aditya Raghunath did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
