Super Micro Computer (SMCI 2.12%) stock continued its roller-coaster ride last week, jumping sharply in after-hours trading Tuesday after the company at last filed its delayed annual and quarterly reports with the Securities and Exchange Commission (SEC). However, it gave back a large portion of those gains in Wednesday's session, then sank even further over the remainder of the week. As of this writing, the stock is up nearly 65% year to date, but down more than 40% over the past year.
Now that the tech company has cleared up the uncertainties about its finances, should investors take this as an all-clear signal to get back into the stock?
NASDAQ: SMCI
Key Data Points
Accounting in question
Supermicro started 2024 as one of the hottest stocks in the market, as it was benefiting greatly from the artificial intelligence (AI) infrastructure build-out. The company designs and assembles servers and rack solutions, and was one of the first server companies to use direct liquid cooling (DLC) in its setups. It's also one of Nvidia's largest customers: It acts essentially as a reseller of Nvidia's graphics processing units (GPUs), which it incorporates into its data center servers.
As a systems integrator and middleman, Supermicro's business does not enjoy high gross margins. Meanwhile, the stock's momentum took a hit in August when its fiscal Q4 results showed margin pressure. Its gross margin fell to 11.3% from 17% a year prior as the company lowered prices in pursuit of new design wins. (Supermicro's fiscal years end in June.)
Shortly thereafter, the stock came under further pressure after the now-closed Hindenburg Research published a short report on Supermicro, accusing the company of accounting manipulation, improper dealings with related parties, and other malfeasance.
It didn't help matters when Supermicro announced it would delay filing its 10-K annual report, saying it needed to assess the design and effectiveness of its internal controls. It wasn't the first time such issues became a concern. In 2020, Supermicro was fined by the SEC after it was discovered that its former CFO had recognized revenue early and understated expenses over a three-year period.
The stock remained under pressure after The Wall Street Journal reported that the company was being investigated by the Department of Justice over potential accounting issues. It wasn't until last month when the company confirmed that both Justice and the SEC had subpoenaed documents from it.
After a short rally that followed an announcement that Supermicro would ship more than 100,000 GPUs with DLC solutions for some very large data centers, the stock crumbled after its auditor, EY, resigned. In an unusually blunt statement for an auditor, EY said it was "unwilling to be associated with the financial statements prepared by management," and further said it had concerns about Supermicro's governance, transparency, and internal controls.
The company's troubles appeared to impact its business, as Supermicro cut its fiscal first-quarter revenue guidance range to $5.9 billion to $6 billion from an earlier projection of $6 billion to $7 billion. Its fiscal Q1 revenue also later came up short of analysts' consensus expectations with the company saying it would be between $5.6 billion and $5.7 billion, well below the consensus of $5.95 billion, as compiled by Bloomberg. Gross margin, meanwhile, remained weak, with the company saying it would be in the 11.8% to 11.9% range.
Now, the company has filed its reports, and here are some of the headline numbers:
| Metric | Fiscal 2025 Q1 | Fiscal 2025 Q2 |
|---|---|---|
| Revenue | $5.94 billion | $5.68 billion |
| Revenue growth | 180% | 55% |
| Gross margin | 13.1% | 11.8% |
Data source: Super Micro Computer.
Despite the apparent impact to its business, the stock nonetheless began to rally after the company named accounting giant BDO as its new auditor and later pledged that it would meet the deadline to file its reports to avoid being delisted from the Nasdaq.
With its filing on Feb. 25, the company says it's now in compliance with Nasdaq listing requirements and that the matter is closed. Management also noted that there were no restatements to its previously filed financial statements.
Image source: Getty Images.
Is it all clear to buy the stock?
While Supermicro was able to file its report and avoid being delisted, BDO did issue an "adverse opinion" on its internal controls over financial reporting. This means that it views the company's internal controls as ineffective and that there is a good chance that any misstatements would not be detected.
A study has found that when auditing firms issue such opinions, they tend to get replaced and often see their businesses hurt. So the steps taken by BDO and especially EY were by no means taken lightly. Nor does the fact that Supermicro has filed the required reports with the SEC mean that the investigations by the Justice Department and SEC have gone away -- although it also isn't clear if they are still ongoing.
While Supermicro lowered its revenue guidance for its current fiscal year, it still has big ambitions for fiscal 2026, with a revenue target of $40 billion, up from a revenue forecast of between $23.5 billion and $25 billion for fiscal 2025. That type of growth potential and the stock's cheap valuation (12.5 times forward P/E based on fiscal 2026 analysts' estimates) are likely to attract investors to it.
That said, Supermicro is ultimately just a play on AI infrastructure. As such, I think investors who want exposure to that trend have plenty of other options beyond a low-margin systems integrator with a history of accounting issues.
