SMCI Deserves Falling Stock Price & Delisting?

July 2024.

Back in July 2024, $SUPER MICRO COMPUTER INC(SMCI)$ was still regarded as one of the hottest stocks in recent years, due to its closed association to artificial intelligence (AI).

It develops and manufactures high-performance server and storage solutions based on modern and open architecture, with a focus on liquid cooling technology.

The company has increased its revenue in fiscal 2020 (ended in June) to $11.81 billion, from $3.33 billion in the last 12 months, driven by strong demand for its products and services. 

Valued at a market cap of $50.2 billion, SMCI stock has returned:

  • A staggering +968% since the start of 2023.

  • A whooping > +3,330% in the last decade

With such glowing account, who would have thought that troubles have been simmering way back in July 2024. (see below)

Noticed, SMCI ‘peaked’ on 12 Jul 2024 before it eased over time, down the slippery slope.

Everyone would have assumed a ‘pull back’ within range is acceptable.

I believed no one could foresee that when the chain of unfavourable events began to unfold, one after another in quick succession, the damage actually snowballed, causing the ‘darling’ of AI boom to crater. (see above)

What Else?

What are the other events / catalysts that led to the current predicament ?

Based on what I have found:

  • Q4 earnings’ weak outlook - 6 Aug 2024.

  • Hindenburg report - 27 Aug 2024.

  • Delay 10-K filing - 28 Aug 2024*.

  • DoJ probes - 26 Sep 2024*.

  • Company’s auditor “code Red”- 30 Oct 2024.

*’ - Event is still ongoing !

Q4 2024 Report Card.

On 08 Aug 2024, SMCI reported its Q4 2024 earnings:

  • Earnings per share (non-GAAP): was $6.25 per share, vs $8.14 expected vs $3.51 (Q4 2023), that was a +78.1% YoY gain.

  • Revenue: was $5.31 billion, vs $5.32 billion expected vs $2.18 billion (Q4 2023), that is a +143% YoY gain.

  • Net income: was $353 million, vs $194 million (Q4 2023), that is a +82% YoY gain.

Despite the better-than-expected YoY results, Wall Street was worried about the company's future because of potential economic problems and over valuations concerns.

As a result, stock price slipped further.

Hindenburg Report.

On 27 Aug 2024, short seller Hindenburg Research accused data center specialist SMCI of (a) accounting manipulation, (b) export control failures, (c) customer issues and other problems.

The report was the result of a 3-month in-depth investigation that included:

  • Interviews with former senior employees & industry experts.

  • Review of company’s litigation records, international corporate and customs records.

Market believed the Hindenburg report because of the company’s past “misdeeds”:

  • In 2018, SMCI was temporarily delisted from Nasdaq for failing to file financial statements.

  • In August 2020, SMCI has been fined $17.5 million by SEC due to "widespread accounting violations".

10-K Filing Delay.

On 28 Aug 2024, SMCI announced the delayed filing of its annual report.

The press release cited “a need to assess its internal controls over financial reporting".

This sent SMCI’s share tumbling -25% in heavy trading on the same day.

Latest: SMCI has until 16 Nov 2024 to file or to submit a plan to the Nasdaq to regain compliance with listing rules.

DOJ Investigates.

On 26 Sep 2024, “The Wall Street Journal” reported that SMCI was being probed by the Justice Department following a critical report by an activist short-selling firm - Hindenburg Research.

The probe said to be in its early stages, had a prosecutor from the US attorney’s office in San Francisco, reportedly seeking information related to the case.

The inquiry appears connected to a whistleblower lawsuit filed in April by Bob Luong, a former employee, who accused the company of accounting violations.

Latest: Seems like the worst case scenario for SMCI is a possible delisting from Nasdaq for the 2nd time in its entire US listing history.

Will it be 100% permanent this time ?

Auditor’s Resignation.

On 30 Oct 2024, SMCI reported that its auditor - Ernst & Young (EY) had resigned as its auditor with effect from 24 Oct 2024. It shocked the market.

In the formal filing to SEC, SMCI submitted EY’s statement on their stepping down :

  • 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.

This sent SMCI shares tumbling > -30%, deepening investor worries about its accounting practices.

More importantly, it reinforced the accusations raised by the Hindenburg report.

Equally, SMCI has refuted EY’s argument:

  • SMCI disagreed with EY’s decision and does not expect the “resolution of any matters raised by EY" to result in the restatement of its quarterly reports for FY 2024 or prior fiscal years.

Ultimately, will SMCI be struck off Nasdaq and be delisted should the company be found guilty of all the offenses uncovered ?

With the above 5 scathing events taking place almost back-to-back and severity getting progressively harsh, it is no wonder that SMCI has effectively transitioned from a darling of the market, an emblem of the ongoing AI gold rush to a veritable pariah, all in a matter of just a few short weeks.

The drama has not ended yet. 2 of 5 events remain ‘outstanding’ and how its impacts SMCI is left to be seen.

It does not help too that SMCI has a dodgy past that resulted in fines as settlement.

From 06 Aug 2024 when it last reported its quarterly earnings to Fri, 01 Nov 2024, SMCI has fallen by -57.77%.

I cannot help but wonder if EY's decision to resign as SMCI's auditor is connected to US’s DoJ investigation into SMCI's accounting irregularities, that were reported by a whistleblower and Hindenburg Research.

SMCI will report its Q1 2025 earnings on Tue, 5 Nov 2024, after market closes. In the face of possible delisting, will its earnings stop its decline or cause it to fall further ? Any thoughts.

Must ReadClick on below titles to access. Give a like & help to repost ok. Thanks.

  • Do you think SMCI earnings will be a good enough indicator on how $NVIDIA Corp(NVDA)$ impending earnings will be like ? Afterall they are part of the AI eco-system.

  • Do you think SMCI will be delisted from $NASDAQ 100(NDX)$ based on rumours swirling on the internet ?

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  • Mess0M
    ·11-05
    TOP
    Accounting irregularities are serious red flags.
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    • JC888
      Hi, tks for reading my post. Hope you liked it. I have a Part 2 out today. Look out for it. Repost to share, Like as encouragement ok. Tks.
      11-07
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  • Sacen
    ·11-06
    All in and couldn't get out?
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    • JC888
      Hi, tks for reading my post. Hope u liked it. me ? no stake in SMCI, not yet until coast is clear. Repost to share, Like as encouragement ok. Tks.
      11-07
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  • JC888
    ·11-11
    $SUPER MICRO COMPUTER INC(SMCI)$ is poised to fall further today. So hold off first n observe the situation ok. Repost to share, Like as encouragement ok. Thanks
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  • JC888
    ·11-05
    Hi, tks for reading my post. I make time to write & share.
    Pls "Re-post" so that more get to know. Tks! Rating is important (to me).
    Consider "Follow me" and get first hand read of my Daily new posts? Thanks!). Tks!!
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