Could Super Micro Computer be Making a Resurgence in 2025?
A few shares have given investors quite the thrill ride within a single year, and none more so than Super Micro Computer (SMCI 0.52%). At its peak, the stock soared by an impressive 318% since the beginning of 2024. However, just a month ago, it plunged by 36% year-to-date. Currently, the stock has rebounded by approximately 45% for the year.
The root causes behind these significant fluctuations were valid, considering the information available to investors at the time. But now, investors are curious if Supermicro can surpass its previous high of $118 that it achieved early this year.
Allegations of accounting irregularities brought Supermicro's stock down
Super Micro Computer has gained popularity over the past few years due to its line of business. Reminiscent of the long-time AI champion Nvidia (NASDAQ: NVDA), Supermicro manufactures crucial components for powerful AI training servers and serves as the backbone for server functionality, providing physical racks and cooling infrastructure. Although not as profitable as Nvidia's GPUs, these components are indispensable.
Demand for these components skyrocketed at the start of the year, pushing its stock price to an impressive $118 per share in March. However, investor enthusiasm was short-lived, as Supermicro started shedding shares throughout the year as profit-taking motivated investors.
The stock made significant gains until late August when Hindenburg Research released a critical report accusing Supermicro of accounting impropriety. The following day, Supermicro announced a delay in filing its end-of-year 10-K report to scrutinize the effectiveness of its financial reporting controls.
This set off a downward spiral for the stock, and subsequent events like the Department of Justice launching an investigation into the company and its auditor, Ernst & Young, resigning, only fueled concerns. However, fresh information has helped the stock recover substantially.
An investigation led by a special committee comprising a Supermicro board member, legal counsel, and forensic accounting experts from Secretariat Advisors concluded that no accounting misconduct occurred, although it did propose replacing Supermicro's CFO (a process currently underway). This revelation alleviated most concerns surrounding Supermicro, but the stock still remains far from its high.
Investors eagerly await a less eventful 2025, filled solely with business news instead of allegations. Therefore, is the stock worth investing in, now that it appears to be in the clear?
Preliminary fiscal Q1 results disappoint
After the departure of Ernst & Young, Supermicro enlisted the help of top accounting firm BDO. However, BDO has yet to certify Supermicro's results from its fiscal 2025 first quarter, which ended on September 30.
In the meantime, investors are left to draw conclusions from Supermicro's preliminary results, which are less than impressive. The company had projected fiscal Q1 revenue of $6 billion to $7 billion, but its preliminary figures suggest a revenue range of $5.9 billion to $6 billion, falling short of expectations. Despite this, preliminary EPS figures remain within its guidance ranges, which indicates its profit picture remains intact.
For fiscal Q2, Supermicro expects sales to range between $5.5 billion and $6.1 billion, representing a quarterly decline, which usually should not occur given the booming AI market. One possible reason could be that Nvidia is reportedly shifting some orders for its next-generation Blackwell GPUs away from Supermicro, sowing seeds of uncertainty.
With this disconcerting situation in place, should investors consider investing in Supermicro after the tumultuous events that have unfolded? I'd say no.
Even though the company has taken decisive actions to address accounting concerns, investor trust remains elusive. Furthermore, with revenues falling short of expectations, there may be underlying issues within the company, which are currently being overshadowed by ongoing investigations (the Justice Department is still concluding its investigation).
As a result, I am refraining from investing in the stock. There are likely many other promising AI investments worth pursuing, rather than wasting time on one that I cannot fully trust.
Following the allegations of accounting irregularities, investors have been keen on understanding if Supermicro can surpass its previous high of $118. Despite the subsequent investigation revealing no accounting misconduct, the stock still remains far from its peak. (money, finance, investing)
Investors are currently grappling with the underperformance of Supermicro's preliminary fiscal Q1 results, having missed revenue projections and facing potential order shifts from Nvidia. (money, finance, investing)
