Super Micro Computer, now under scrutiny as a winner from artificial-intelligence boom that could be forced to delist its stock, just might avoid that fate.
A person familiar with the matter told Barron's that Super Micro intends to submit a plan that will allow it to continue to trade on the Nasdaq Stock Market by Monday. This is a look at how the server maker found itself in this position.
Super Micro Shares Surged 18% in after hours trading.
Less than a year ago, things were going gangbusters for the maker of the computer servers used for artificial intelligence. The stock reached its 2024 closing high on March 13, when it was up 318% for the year.
Analysts were confident there was more room for growth. J.P. Morgan analysts began coverage of the stock with an Overweight rating in March, calling Super Micro the leading company in the AI computing market.
How the mighty have fallen. Shares are now off 37% this year, for a gap between the high and the current price of 355 percentage points, by far the widest for any company in the S&P 500, according to Dow Jones Market Data. In second place is Moderna, which was up 68% at its 2024 peak but is now down 63%, a spread of about 130 percentage points.
Behind the reversal are a combination of concerns regarding profit margins, a short-seller report, delayed financial filings, and the loss of an auditor. It remains unclear whether the company can continue to trade on the Nasdaq Stock Market.
Margins and Short Sales
Matters took a decisive turn for the worse on Aug. 6, when Super Micro reported that its fourth-quarter adjusted gross profit margin came in at 11.3%, versus 17.1% the prior year. That was enough to send the stock lower, even though the company provided a strong sales forecast for the current year, and the board of directors also authorized a 10-for-1 stock split of its common stock.
Splits don't change the financial value of existing investors' holdings, but they can trigger buying by making a stock more accessible to investors with less cash to put to work.
The next blow came on Aug. 27, when the short seller Hindenburg Research published a report on Super Micro that alleged it found "glaring accounting red flags, evidence of undisclosed related party transactions, sanctions and export control failures, and customer issues." Super Micro has said the report "contains false or inaccurate statements about our company including misleading presentations of information."
Filing Delay Puts Nasdaq Listing at Risk
One day after the short report went live, Super Micro said it would delay filing its form 10-K for the fiscal year ended June 30, saying it needed more time to "complete its assessment of the design and operating effectiveness of its internal controls over financial reporting as of June 30, 2024." Shares fell 19% that day.
A few weeks later, on Sept. 17, the Nasdaq sent a letter to Super Micro, saying the company wasn't in compliance with a listing rule that requires timely filing of reports with the Securities and Exchange Commission. Super Micro was given 60 days to file the delayed report, or to submit a plan for Nasdaq's approval detailing how it would regain compliance to remain listed on the exchange.
The Stock Splits and Auditor Resigns
The stock split on Oct. 1, shortly before the company said on Oct. 7 that it deployed liquid-cooled servers using more than 100,000 graphics processing units for some of the largest AI factories ever built. While that lifted shares by 16%, the gain didn't last.
On Oct. 30, Super Micro disclosed that the accounting firm Ernst & Young, its auditor, had resigned. "We are resigning due to information that has recently come to our attention which has led us to no longer be able to rely on management's and the Audit Committee's representations and to be unwilling to be associated with the financial statements prepared by management," EY said.
That raised even more concern among investors, who weren't sure whether the company would hit the deadline to remain listed. The key question: How can a company file financial reports with the SEC without an auditor?
Business Update Doesn't Provide Much Hope
A " business update" and call with investors, held after the market closed on Election Night, Nov. 5, didn't move the needle. Shares fell 18% the next day after preliminary revenue guidance issued by the company missed the mark.
Management said it was "working diligently," to hire a new auditor, and that it would be filing a plan with the Nasdaq regarding an extension to the filing deadline. The Nasdaq has declined to comment.
Another Filing Delay
On Wednesday, Super Micro said in a securities filing that it needs additional time to file its 10-Q form for earnings in the last quarter. This wasn't a shock, given that the company still hadn't filed its 10-K and was without an auditor following the resignation of EY.
That brings us to the present. Nasdaq's 60-day deadline period ended Saturday, during the weekend, giving the company a little more time under Nasdaq's listing rules.
If Super Micro is delisted, that would be the second time in its history. The stock was delisted in August 2018 for a delay in the filing of financial reports. It was then relisted in January 2020.
Stay tuned.