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Super Micro Computer (SMCI) is an artificial intelligence (AI) hardware company valued at a market cap of $12.6 billion. It develops servers and storage solutions that meet the requirements of AI workloads, which demand high-performance computing capabilities.
Super Micro’s products are tailored for deployment in AI data centers, and rising demand drove SMCI's share price from $8.44 in January 2023 to $122 in March 2024. Today, the AI stock trades more than 81% below all-time highs due to a slew of regulatory issues, burning massive shareholder wealth in the process.
Let’s see if you should buy, hold, or sell SMCI stock at the current valuation.
Super Micro is Accused of Accounting Manipulation
In March 2024, Super Micro was added to the S&P 500 Index ($SPX) after the stock soared over 2,000% in the previous two years, outpacing the returns of even giants such as Nvidia (NVDA). Soon after the index change was announced, Super Micro stock traded at an all-time high, valuing the company at a market cap of almost $70 billion. However, the stock's Cinderella story has gone downhill fast in the past six months.
First, short seller Hindenburg Research accused Super Micro of accounting manipulation. Then, a Wall Street Journal report stated that the Department of Justice had initiated a probe into the hardware maker over the same concerns.
On Oct. 30, the tech stock lost nearly 33% in a single day after its auditor, Ernst & Young, resigned, claiming it was “unwilling to be associated with the financial statements prepared by management.” Investors now suspect that Super Micro's accounting statements are messy and manipulated, and are dumping the stock in response.
Will SMCI Stock Be Delisted?
Raising the stakes even further, Super Micro might be delisted from the Nasdaq stock exchange if it does not file its annual report for fiscal 2024 (ended in June) by the end of next week.
In its unaudited quarterly results, released after Tuesday's close, Super Micro reported revenue of $6 billion with adjusted earnings of $0.73 per share in fiscal Q1 of 2025. Comparatively, analysts forecast sales at $6.45 billion on earnings of $0.75 per share.
For the current quarter, Super Micro projected revenue between $5.5 billion and $6.1 billion, well below estimates of $6.84 billion.
In addition to its weak performance, Super Micro stated that it has no timeline for releasing its long-delayed annual report, suggesting it's likely to miss the Nov. 16 deadline to maintain listing compliance. Delisting would send the stock to the over the counter markets, likely resulting in more steep losses as institutional holders are free to unload the shares.
Is the Worst Over for Super Micro Computer Stock?
After losing more than $55 billion in market cap, Super Micro trades at a cheap valuation, given its strong growth rates. For instance, SMCI's revenue increased to $14.9 billion in fiscal 2024, up from $3.3 billion in fiscal 2020. Its operating income rose to $1.26 billion from $85.7 million in this period.
Super Micro has developed DLC (direct liquid cooling) systems, which are essential for managing heat generated by AI systems. This technology improves energy efficiency by lowering energy costs and enhancing operational reliability in data centers. AI-driven investments in data centers are estimated to increase significantly, allowing Super Micro to benefit from secular tailwinds.
Over the years, Super Micro has established strong partnerships with chip manufacturers such as Nvidia (NVDA) and Advanced Micro Devices (AMD). These collaborations allow Super Micro to easily integrate advancements in processing technology into its system, providing it with a competitive moat. However, reports this week have indicated that NVDA is now shifting orders to alternate suppliers, perhaps anticipating supply disruptions from Super Micro.
Super Micro has more than doubled its revenue in each of the last four quarters and ended fiscal 2024 with adjusted earnings per share of $2.21. Analysts expect its earnings to expand to $3.36 per share in fiscal 2025. So, priced at 6.7x forward earnings, SMCI stock is cheap - if its financials are in order, which is unfortunately still an open question for investors at this point.
While the stock's mean price target of $66.99 from analysts implies substantial upside potential from current levels, that's largely the result of SMCI's rapid sell-off in recent weeks. Many analysts have downgraded the stock or suspended coverage amid its recent troubles, and the consensus rating is now a “Hold,” down from a “Buy” last month.
While the stock's low valuation may look tempting, SMCI stock is a high-risk investment right now. If its books are in order, the stock can potentially generate multi-bagger returns from here - but there's a substantial level of uncertainty around the accounting issues right now, and the threat of delisting seems imminent, with no clarity from management on how they plan to regain compliance.
On the date of publication, Aditya Raghunath did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
