Super microcomputer (NASDAQ: SMCI ) has been one of the most polarizing stocks to own this year. It started out as a hot artificial intelligence (AI) company with huge potential, but it has recently become a risky investment with potentially lopsided numbers due to poor accounting controls and procedures.
Some investors believe the company has put to rest fears about its business after an independent, special board committee recently reviewed its operations and found no evidence of wrongdoing by management or the board of directors. . The stock is rallying again, but it’s still more than 60% below its 52-week high of $122.90.
If the company proves its doubters wrong, Supermicro could reap even greater gains in the coming weeks and months. Could this be the reason for a big rally in 2025?
There are three main issues that appear to be weighing on Supermicro’s valuation this year:
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of the company Gross margin are shrinking This is a significant issue because without strong margins, its chances of growing the bottom line deteriorate, and this could make the stock a very poor buy.
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Hindenburg Research, a popular short-seller, released a report in August that claimed Supermicro had engaged in accounting manipulation and was effectively inflating its numbers.
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The company’s auditor, Ernst & Young, resigned in October, raising concerns about its internal controls and raising concerns about the reliability of its financials. The company is also late in reporting its quarterly and annual filings.
Tech stocks have been falling in recent months due to these concerns. But with the company recently announcing that it had found a new auditor in BDO and a special committee finding no evidence of wrongdoing, investors are looking more subdued after the stock’s surge in recent weeks. .
For Supermicro to put to rest the fears surrounding its business, at least for the most part, it needs to produce solid audited financials. If it can do that, it should succeed in winning back many investors who may be worried that it is too risky.
The company has acquired the extension from Nasdaq to file its financials by February 25. If its new auditor signs off on the annual results and the numbers look good and margins improve, that could be just what the stock needs to regain investor confidence.
Until that happens, however, there is going to be some considerable risk and uncertainty surrounding the stock. In its most recently completed filings, which were for the period ending June 30, Supermicro posted sales of $5.3 billion, driven by incredibly strong demand for its IT infrastructure, including cloud and server solutions. is going strong, up 143% year-on-year.
