After months of turbulence tied to accounting concerns, Super Micro Computer (NASDAQ: SMCI) is making a remarkable recovery. On December 2, the stock surged 28%, closing the day at $42.
As of press time, SMCI is trading at $40, marking an impressive 54% gain over the past month and a 40% year-to-date increase in 2024.
The rally comes on the heels of an independent investigation that cleared the AI server manufacturer of any misconduct, reigniting investor confidence. With the current momentum, SMCI is well-positioned for a sustained upward trajectory, supported by strong technical indicators and improving fundamentals.
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Investigation clears SMCI of allegations
The investigation into SMCI’s financial practices was initiated after short-seller Hindenburg Research and former auditor Ernst & Young raised allegations in mid-2024. These concerns were compounded by Ernst & Young’s resignation in October and warnings of potential delisting from Nasdaq.
However, a three-month independent review by a special committee revealed no evidence of fraud or misconduct.
“The evidence reviewed by the Special Committee did not raise any substantial concerns about the integrity of Supermicro’s senior management or Audit Committee, or their commitment to ensuring that the Company’s financial statements are materially accurate,” the report said
The findings confirmed that the company would not need to restate its financial results for fiscal 2024 or prior years, easing fears of systemic accounting issues.
SMCI has since been involved in a series of governance reforms, including appointing a new Chief Accounting Officer, Chief Compliance Officer, and General Counsel. These changes aim to enhance oversight and ensure greater accountability moving forward.
The investigation also addressed comments from Ernst & Young’s resignation letter, finding them unsupported by facts. SMCI’s leadership emphasized its ability to meet filing deadlines, avoid delisting, and retain its Nasdaq listing status.
SMCI recently submitted a detailed compliance plan and appointed BDO as its new auditor, successfully averting delisting for the time being.
Technical momentum supports the rebound
From a technical perspective, SMCI is signaling bullish potential. Notably, in an analysis by TradingShot, the stock recently tested its 200-week moving average (MA200) for the first time in four years, a key support level not reached since October 2020.
This coincided with the Fibonacci 1.0 level, a historically significant marker that previously capped SMCI’s Channel Up pattern. Between January 2023 and March 2024, the stock broke out from this level into a parabolic rally.
Additionally, the 1-week Relative Strength Index (RSI) dipped to 30 in November, entering oversold territory for only the second time in six years. Historically, such conditions have marked the beginning of significant rallies, with SMCI already rebounding 80% from its mid-November lows.
The stock has also closed the gap created during the October 28 sell-off, signaling robust buying momentum. This rebound suggests that long-term investors and traders identified the oversold zone as an attractive entry point.
The recovery pace signals that market participants are regaining confidence in SMCI’s ability to address its accounting and compliance issues.
For traders, this momentum presents an excellent opportunity to capitalize on the short-term rally as the stock continues to recover lost ground. For long-term investors, the rebound confirms the strength of the technical setup, reinforcing the bullish outlook for SMCI.
Analysts target $122 by 2025
Analysts are eyeing $122.50 as a realistic target for SMCI by Q3 2025, supported by technical and historical patterns. The Fibonacci extension projects the stock’s movement into the 3.5 to 4.0 zone by 2025, provided market conditions remain favorable. However, challenges loom on the horizon.
SMCI recently issued preliminary guidance for Q2 FY2025 revenue between $5.5 billion to $6.1 billion, 12% below consensus expectations, which raises concerns about potential supply-demand imbalances.
Additionally, gross margins declined to 11.2% from 17% in the same quarter last year, potentially pressuring profitability further.
Despite lingering concerns, including margin compression and inventory risks, SMCI’s technical and fundamental outlook remains bullish.
The resolution of its accounting issues has cleared a significant overhang on the stock’s valuation, and its positioning in the AI server market provides a strong growth foundation.
If SMCI successfully addresses its operational challenges while maintaining its growth momentum, the $122.50 price target by 2025 appears realistic.
For investors, the current momentum offers an excellent opportunity to capitalize on both the short-term recovery and the long-term potential of this AI server leader.
Featured image via Shutterstock
