Few stocks have taken investors on more than a roller-coaster ride in a year Super Microcomputer(NASDAQ: SMCI ). At one point, the stock was up 318% from where it started 2024. Just a month ago, it was down 36% year to date. Now, at the time of this writing, it is up nearly 45% for the year.
The reasons behind those big moves were really solid, considering what investors knew at the time. But now, investors want to know if Supermicro can reach the high of $118 earlier this year.
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Super Microcomputer has become a hot stock over the past few years because of its business. Similar to the long-term Artificial Intelligence (AI) winner nvidia (NASDAQ: NVDA )Supermicro makes the components that go into the powerful computing servers that train AI models. Supermicro also makes the components that allow the server to function, such as the physical rack and cooling infrastructure.
While not as high-margin as Nvidia GPUsThese are still essential products, and Supermicro saw huge demand at the start of the year. That demand drove its stock to record highs in March when it achieved a stock price of $118 per share. However, the enthusiasm was too much, and Supermicro slowly sold off throughout the year as investors took profits.
The stock was still having a successful year until late August when Hindenburg Research published a short report alleging that Supermicro was involved in some level of accounting fraud. To make matters worse, the next day, Supermicro announced that it was delaying the filing of its year-end 10-K report to evaluate “the design and operational impact of its internal controls over financial reporting.”
That started the stock down, and other events — including the Justice Department opening an investigation into the company and the resignation of its auditor, Ernst & Young — made it appear as though the stock was doomed. However, the new information caused the stock to recover significantly.
A special committee consisting of a member of Supermicro’s board, a legal team, and a forensic accounting team of secretarial consultants found no wrongdoing in the accounting practices, although it ordered Supermicro’s CFO (a process currently running) was recommended to be replaced. The news basically nullifies all of the issues that caused Supermicro’s decline over the past few months, but the stock is still far from its peak.
Investors expect another boring 2025 dominated only by business news, not allegations. So, is the stock worth buying now that it looks obvious?
After Ernst & Young resigned, Supermicro hired a top accounting firm, BDO. BDO has not yet certified Supermicro’s results from the first quarter of its fiscal year 2025, which ended on September 30, but it is likely to do so soon.
Until then, we have to rely on management’s initial results, which unfortunately are not good.
Supermicro was guiding for first-quarter revenue of $6 billion to $7 billion, but its preliminary results actually point to revenue between $5.9 billion and $6 billion. However, its preliminary EPS figures are near the middle of its guidance range, so the company’s profitability picture is still intact.
For fiscal Q2, sales are expected to be between $5.5 billion and $6.1 billion. That would be a quarter-over-quarter decline, something that shouldn’t happen considering the AI market is still booming. One problem could be that Nvidia is reportedly taking some orders away from Supermicro for server hardware for its next-generation Blackwell GPUs. This is not a good sign.
So, should investors open new positions in Supermicro? I won’t say
Although the management has taken proper steps to clear itself of accounting malpractices, there is no confidence in the company. Additionally, with its revenue undercutting its guidance, there could be further turmoil within the company that is being overshadowed by various ongoing investigations. (The Justice Department is still completing its investigation.)
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