The share price of Super Micro Computer Inc. (NASDAQ: SMCI) is witnessing a significant sell-off as investors turn bearish on the company following its recent accounting challenges.
To recap, SMCI came under scrutiny after its auditor, Ernst & Young, resigned, citing issues with governance, transparency, internal controls, and concerns over management’s independence.
As a result, the stock has erased gains from the company’s venture into artificial intelligence (AI). At the close of the last trading session, SMCI was valued at $26.05, down over 10% for the day. In the past week, the stock has plunged by 45%; year-to-date, SMCI has dropped by 8.7%.
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From a technical perspective, SMCI shares show troubling signs on the five-year weekly chart, suggesting a challenging period ahead.
According to an analysis shared by market analysts under the pseudonym Brett, the recent price movement has plunged SMCI below the crucial 50-week moving average, suggesting a more short-term downside correction.
The stock has witnessed a notable price surge in the last five years but seems to be losing momentum. Overall, there is waning investor interest in the company after the stock consistently failed to hold above key support levels.
AI’s take on SMCI’s recovery path
With SMCI stock seemingly in free fall, attention has turned to the potential for a recovery amid the accounting debacle. To this end, Finbold consulted OpenAI’s ChatGPT-4o for insights.
According to ChatGPT-4o, several factors could influence a recovery. Optimism may arise if the the management hires a new auditor, addresses internal controls, and provides financial transparency. Market reaction, institutional interest, short-term selling pressure, and broader market sentiment will also be critical.
If these factors align, ChatGPT-4o anticipates a recovery in early 2025. However, if internal issues persist, the stock could continue declining through late 2025.
Analysts take on SMCI stock
Mizuho Securities analyst Vijay Rakesh backs the possible recovery. The analyst reiterated a ‘Hold’ rating with a price target of $45 despite the Ernst & Young resignation.
However, Rakesh noted that the stock faces an increased risk of delisting, especially after Nasdaq issued a non-compliance warning to the company.
SMCI’s management currently has an opportunity to rectify these issues. It has until November 16 to present a plan to file a 10-K report and secure a new, credible auditor.
If the AI hardware manufacturer fails to meet this requirement, it risks deregistration from the exchange. SMCI will have until late February 2025 to file its 10-K and return to compliance, which could be a bullish move that boosts investor confidence if it meets the compliance set by Nasdaq.
At the same time, Rosenblatt Securities suspended its rating and price target for SMCI. The analysts are awaiting clarity on the troubled firm’s financial reporting and management practices.
Notably, SMCI’s troubles began in August after Hindenburg Research accused the firm of “accounting manipulation,” which led to a short-term stock correction.
Impacting of SMCI’s earning report
The stock’s potential recovery will also heavily rely on the upcoming earnings report scheduled for November 5. If the company beats analyst estimates and issues strong guidance, it could be a positive signal before fully resolving its accounting issues.
For the first quarter of 2025, SMCI is projected to post earnings of $0.75 per share, representing 120.6% year-over-year growth. Meanwhile, revenues are expected to come in at $6.52 billion, up 207.5% from the year-ago quarter.
In summary, with SMCI showing weakness, investors may want to remain cautious and monitor how the technology firm resolves the accounting issues.
