Super Micro’s Stock Crashes 45% This Week, Erasing All 2024 Gains Amid Auditor Exodus
Super Micro investors were in a panic on Friday, leading to an 11% decline in stock value, which brings the total drop for the week to a staggering 45%. This sharp decline follows the company’s announcement that it has lost its second auditor in less than two years, prompting fears about its financial stability.
At the end of trading on Friday, Super Micro’s shares closed at $26.05, effectively wiping out all gains achieved in 2024. The stock had reached a high of $118.81 back in March, marking a significant increase of over four times its value since the beginning of the year. This surge was largely fueled by positive sentiment surrounding Super Micro’s robust sales of servers equipped with Nvidia’s advanced artificial intelligence processors. The company had also recently been added to the S&P 500 index, further boosting its profile among investors.
However, the company’s dramatic fall from grace since March has resulted in a staggering loss of approximately $55 billion in market capitalization. Furthermore, Super Micro now faces the risk of being delisted from the Nasdaq, which would severely impact its ability to attract investment. On Wednesday, as the stock was experiencing its second-worst trading day in history, Super Micro announced plans to provide a “business update” on its latest quarterly performance, scheduled for Tuesday—Election Day in the United States.
The troubles for Super Micro can be traced back to August when the company revealed that it would not be able to file its annual report on time with the Securities and Exchange Commission (SEC). This news prompted Hindenburg Research, a well-known short seller, to disclose a short position in the company, claiming to have found “fresh evidence of accounting manipulation.” Subsequent reports from the Wall Street Journal indicated that the Department of Justice (DoJ) was initiating a probe into the company’s operations, raising additional red flags for investors.
In a concerning turn of events, Super Micro announced on Wednesday that Ernst & Young (E&Y) had resigned as its accounting firm just 17 months after taking over from Deloitte & Touche. The resignation came with a statement from E&Y indicating that it was “unwilling to be associated with the financial statements prepared by management.” This abrupt departure adds to the uncertainty surrounding the company’s financial health.
A spokesperson for Super Micro conveyed to CNBC that the company “disagrees with E&Y’s decision to resign,” emphasizing that it is actively working to select a new auditing firm. The company maintains that it does not anticipate any restatements of its quarterly financial results for the fiscal year ending June 30, 2024, or for previous fiscal years.
In light of these developments, analysts at Argus Research have downgraded Super Micro’s stock to a hold position, citing the concerning note from Hindenburg, the reports of a DoJ investigation, and the departure of the company’s accounting firm as significant issues. Argus’ concerns extend beyond mere accounting irregularities, suggesting that the company may be engaged in transactions with problematic entities. The analysts speculated that the DoJ’s focus may revolve around related-party transactions and the possibility that Super Micro’s products may have reached sanctioned Russian companies.
In September, after announcing the delay in filing its report, Super Micro received a notification from Nasdaq indicating that its late filing status rendered it non-compliant with the exchange’s listing rules. Super Micro was granted a 60-day grace period to either file its report or submit a plan to regain compliance, with the deadline set for mid-November.
Despite not having filed any financial documents with the SEC since May, Super Micro claimed in an August earnings presentation that its revenue had more than doubled for three consecutive quarters. Analysts project that for the fiscal first quarter that ended in September, revenue could exceed $6.45 billion, an increase of over 200% compared to $2.1 billion a year prior and $1.9 billion in the same quarter of the previous fiscal year.
As Super Micro navigates this tumultuous period, its ability to recover and regain investor confidence will largely depend on how effectively it can address the myriad of challenges it currently faces, including resolving its auditing issues and the ongoing scrutiny from regulatory bodies.
