By Dan Gallagher
Super Micro Computer wasn't priced for any trouble. A lot of trouble is going to prove costly.
The maker of specialized AI servers saw its shares sink 26% early Wednesday after it announced a delay in filing its 10-K. That may seem a steep price for late paperwork, but it came just a day after a scathing report from Hindenburg Research. The famed short-selling firm claimed to have found "glaring accounting red flags, evidence of undisclosed related party transactions, sanctions and export-control failures, and customer issues."
Investors mostly shrugged off those claims initially; Super Micro's stock was down only 2.6% by Tuesday's close. However, the delayed 10-K filing seemed to confirm at least the potential for problems. "Additional time is needed for SMCI's management to complete its assessment of the design and operating effectiveness of its internal controls over financial reporting," Wednesday's statement read.
Time will tell if Hindenburg's allegations stick. But questions about Super Micro's growth threaten the underpinnings of what until recently was an even hotter AI stock than Nvidia. Super Micro's shares more than tripled in value in the first three months of this year, after the company first began reporting booming sales growth due to demand for servers using Nvidia's chips.
That helped usher the 31-year-old company into the S&P 500 and even put Super Micro's market cap within spitting range of rival server maker Dell--which is more than seven times larger in terms of annual revenue.
That run also gave Super Micro a pricey valuation of more than 43 times forward earnings at its peak--more than triple the multiples of Dell, Cisco and Hewlett Packard Enterprise. The stock has lost a lot of ground since, especially following the company's quarterly earnings earlier this month, which showed a sharp drop in gross margins.
But Super Micro was still at a premium to IT equipment peers ahead of this week's developments. Even Wednesday's drop leaves it with a year-to-date gain of 45%--among the top 25 performers on the S&P 500. Super Micro's AI bubble may still be facing some deflation.
This analysis comes from the Journal's Heard on the Street team. Subscribe to their free daily afternoon newsletter here_._
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August 28, 2024 11:34 ET (15:34 GMT)
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