Super Micro Computer (SMCI +0.41%) has been one of the key players in the artificial intelligence (AI) boom, working hand in hand with top chip designers, like Nvidia, to build out infrastructure. The tech company makes servers and full rack scale solutions needed in AI data centers and incorporates the top chips in its systems. This has resulted in triple-digit revenue growth and earlier last year, sent the shares to record levels.
But concerns about Supermicro's financial reporting disrupted this momentum, and delays in the filings of reports put its listing on the Nasdaq at risk. Supermicro stock, which soared in the first half of last year -- even outperforming market-star Nvidia -- then tumbled. Over the past six months, the shares have lost more than 60%.
Supermicro may be heading for better days, though, and the start of those times could be happening at the end of February. In fact, Feb. 25 is a crucial date for the company. Should you buy the stock before then?
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The Supermicro success story
First, here's a summary of the Supermicro story so far. This tech company has been around for more than 30 years, but revenue took off in recent times, thanks to demand from AI customers. For example, last year, the company reached its first $3 billion quarter, delivering more revenue than it did in a whole year as recently as 2021.
Supermicro has been popular among AI customers for two reasons. First, it works closely with the world's top chip companies so that it can immediately include their latest innovations in its systems. Second, Supermicro's building-blocks technology -- with many similar parts across its platforms -- allow the company to quickly tailor solutions to a customer's specific needs.
On top of this, Supermicro is a leader in the area of direct liquid cooling (DLC) technology, which could become a huge revenue driver as it addresses one of the big challenges in AI data centers -- heat buildup. Last year, the company predicted 15% to 30% of new data centers will opt for DLC technology, and Supermicro aims to dominate this market.
All of this drove the stock's performance -- until a short report by Hindenburg Research suggested accounting troubles at Supermicro. At the same time, Supermicro delayed the submission of its 10-K annual report and later a 10-Q quarterly report. Finally, the company's auditor quit, and an independent committee launched a review of Supermicro's financial reporting.
Meanwhile, the reporting delay led Nasdaq to issue a non-compliance letter, meaning the exchange could eventually drop Supermicro if the company didn't develop a plan to submit its earnings reports.
An important moment ahead
Though all of these elements weighed heavily on the stock, Supermicro finished the year with some positive news. The independent committee reviewing Supermicro's accounting practices found no evidence of fraud or misconduct, and the company said it didn't expect changes in its financial reports from the earlier unaudited versions. To make the situation even brighter, the Nasdaq set a new date for the submission of the delayed financial reports -- Feb. 25 -- and Supermicro said it expects to file the reports by this time.
NASDAQ: SMCI
Key Data Points
Now let's get back to the question: Should you buy Supermicro before Feb. 25? The stock looks dirt cheap, now trading at only 10x forward earnings estimates, and if Supermicro meets the new financial report filing deadline, the stock could take off.
Until those reports are filed, however, the company remains high risk. Right now, there's still the possibility that Supermicro's reports won't be ready on time or there may be some adjustments that don't sit well with investors. Considering the troubles of the past few months, it's best to wait until Supermicro regains Nasdaq compliance and we have complete visibility on the latest earnings figures before investing.
Though it seems the worst may be behind Supermicro and it may be well-positioned to recover and continue along its explosive growth path, it's still too early for most investors to get in on this stock.
