Super Micro’s troubles are mounting.
It all began this summer when short-selling investor Hindenburg Research released a report on Aug. 27, alleging accounting manipulation and undisclosed related-party transactions by Super Micro (SMCI) . The report also highlighted potential violations of export controls.
Following these allegations, Super Micro announced on Aug. 28 that it would delay filing its annual report to assess its internal controls over financial reporting. This delay further raised investor concerns about the company's financial transparency.
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The stock took a steep dive. The combined impact of Hindenburg's report and Super Micro's delayed filing triggered a sharp sell-off, sending Super Micro shares plummeting by nearly 20% on Aug. 28.
But it was not the end of the tumble. The stock fell another 33% on Oct. 30 after its auditor Ernst & Young resigned, saying that it was “unwilling to be associated with the financial statements prepared by management.” SMCI lost 12% and 10.5% on Oct. 31 and Nov. 1, respectively.
Super Micro CEO Charles Liang responded to the Hindenburg Research accusation by stating that the report contained "false or inaccurate statements."
Super Micro also said its board formed a special committee to investigate Ernst & Young's concerns. After a three-month review, the committee found "no evidence of fraud or misconduct" by management. The company is now hiring a new auditor.
But it still can’t predict when it will file its delayed 10-K annual report, which was supposed to be due on Aug. 29. The deadline is Nov. 16.
What does Super Micro Computer do?
Super Micro Computer’s AI server solutions are used in diverse industries such as healthcare, retail, and manufacturing. The business saw a boom as its servers are packed with Nvidia’s graphic processing units, or GPUs, ideally suited for training and running AI programs like OpenAI's ChatGPT or Google's Gemini.
For the quarter ending Sept. 30, Super Micro reported adjusted earnings per share of 75 to 76 cents, slightly above analysts' estimate of 73 cents. Revenue came in at $5.9 billion to $6 billion, which fell short of analyst expectations of $6.45 billion but is still up 181% year-over-year.
Super Micro noted during its earnings call that Nvidia has not adjusted its GPU allotment to customers.
Related: Analysts update Super Micro stock price target after shocking disclosures
“We have the deepest of relationships with Nvidia,” CFO David Weigand said. “Now we have multiple state-of-the-art projects in progress, and we’ve spoken to Nvidia, and they’ve confirmed they’ve made no changes to allocations.”
Liang said demand is strong for Nvidia's Blackwell, which began shipping recently.
“We are asking Nvidia every day,” Liang said. "Our capacity is ready, but there are not enough new chips.”
Super Micro's December quarter forecast fell short. Adjusted EPS is projected at 56 to 65 cents versus the 83 cents analysts expected. Revenue is estimated at $5.5 to $6.1 billion, below the $6.86 billion forecast.
Super Micro stock peaked at $118.81 in March, shortly after joining the S&P 500. The stock closed at $22.7 on Nov. 6.
Dell might take the baton from Super Micro
Citi analyst Asiya Merchant sees Super Micro's recent challenges as a possible advantage for Dell Technologies (DELL) and HP Enterprise (HPE) , according to GuruFocus.
Merchant indicated in a client note that Dell could benefit the most from reduced competition and a rise in AI-related orders, with HP also likely to gain, though to a lesser degree.
Related: Analysts revise Dell stock price target ahead of earnings
This change in market dynamics may create opportunities for both companies to grow their customer base amid Super Micro’s difficulties, as they also provide AI servers that can handle Nvidia’s popular chips.
Hindenburg Research highlighted in August's Super Micro report that Dell has "emerged as a top vendor for servers that can handle artificial intelligence workloads, especially those based around Nvidia chips."
Dell beat Wall Street’s expectations in its August earnings report and raised its full-year forecast lead by an 80% increase in artificial intelligence server sales, which climbed to $3.1 billion from $1.7 billion in the previous quarter.
In May, Nvidia CEO Jensen Huang publicly endorsed Dell: “Nobody is better at building end-to-end systems of very large scale for the enterprise than Dell.”
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Hindenburg Research also noted that Tesla had sourced servers exclusively from Super Micro, according to Barclays, in September 2023. However, CEO Elon Musk’s May posts suggest Dell has now secured major deals with Tesla and Musk's xAI, reducing Super Micro’s exclusivity.
Dell will report its fiscal Q3 results on Nov. 26. The stock is up more than 80% year-to-date.
Related: Veteran fund manager sees world of pain coming for stocks
