Super Micro Computer (SMCI, Financial), once a favored stock in the AI sector, is now grappling with significant setbacks, including an investigation by the U.S. Department of Justice and a short-seller report from Hindenburg Research questioning the company's governance and integrity. Recently, EY resigned as their auditor, further complicating matters.
Concerns are mounting that Super Micro could face delisting from Nasdaq, jeopardizing its inclusion in the S&P 500 Index. Since hitting a record high in March, the company's stock has plummeted more than 75%. Investors await the upcoming earnings report, with options data indicating potential volatility of up to 20% in stock price post-announcement.
The resignation of EY adds urgency to how Super Micro will meet Nasdaq's compliance requirements. The company missed the August deadline for filing its annual 10-K report. Nasdaq mandates that they must present a compliance plan by mid-November, potentially extending the deadline to February 2025 if approved. However, EY's resignation complicates this process.
Analysts express skepticism about the company's ability to produce the required financial reports within the short timeframe and without an auditor. Earlier in the year, Super Micro's stock climbed when included in the S&P 500, driven by demand for AI-powered data center servers. But, delays in the 10-K filing and allegations of revenue inflation have caused investor withdrawals.
While Super Micro has begun searching for a new audit firm and does not anticipate restating previous financial reports, uncertainty remains. Analysts from Needham have temporarily halted coverage of SMCI, concerned that a new auditor might necessitate financial restatements.
Bloomberg analyst Jin Ho notes that delisting might lead to Super Micro's removal from the S&P 500, forcing index funds to sell their shares. About 24% of SMCI shares are held by passive funds, with 8% linked to the S&P 500.
Previously, in 2019, Super Micro faced a similar delisting situation due to filing delays but was relisted in 2020 after resolving SEC accounting inquiries with a $17.5 million settlement. Concerns linger over potential impacts on customer confidence and competitiveness, with Dell Technologies potentially benefiting from any shift in orders.
