The unfolding challenges at Super Micro Computer (NASDAQ: SMCI) continue to stir market uncertainties, especially as it edges closer to a potential delisting from Nasdaq.
Following serious accounting allegations and the sudden resignation of its auditor, Ernst & Young, investor confidence has sharply dwindled.
Once valued at $70 billion, SMCI’s market cap has plunged to $12.6 billion, with the stock now trading 77% below its all-time high.
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This sharp decline paints a picture of both risk and opportunity, depending on how regulatory and market dynamics unfold in the coming months.
Technical indicators point to a potential rebound
According to an analysis by TradingShot, SMCI recently touched its 200-week moving average (1W MA200), a level not seen since October 2020.
Historically, this technical level has signaled buying opportunities, with the stock initiating multi-week rallies that set new highs each time it has rebounded here.
Additionally, the one-week Relative Strength Index (RSI) dipped into oversold territory, a rare event previously observed during major market downturns in 2018 and 2020. These levels typically reflect exhaustion in selling pressure, potentially signaling a bottom.
Further supporting this bullish technical outlook, SMCI’s price aligned with significant Fibonacci retracement levels.
The October 2018 Fibonacci channel places SMCI at critical support levels, reinforcing the idea that the stock is near a long-term buying range. For long-term investors, these levels indicate an attractive entry point, with an eye on a potential recovery towards previous highs.
Accounting controversies and governance issues
In contrast to the optimistic technical analysis, SMCI’s fundamentals are clouded by accounting controversies and governance concerns. In March 2024, after being added to the S&P 500 Index, SMCI was accused of accounting irregularities by short-seller Hindenburg Research.
These accusations, combined with a Department of Justice (DOJ) investigation, cast doubt on the company’s financial transparency.
Most notably, Ernst & Young (EY), SMCI’s auditor, resigned in late October, citing that it was “unwilling to be associated with the financial statements prepared by management.” This resignation fueled investor concerns, leading to a one-day stock drop of nearly 33%.
Market position and product strengths
Despite governance and regulatory issues, SMCI maintains a strong position in the AI hardware market. Super Micro’s innovative direct liquid cooling (DLC) systems offer energy-efficient and cost-effective solutions for data centers, an essential advantage as AI computing demands rise.
The company saw a brief rally in early October after announcing quarterly shipments of over 100,000 GPUs and delivering over 2,000 liquid-cooled racks since June 2024.
Moreover, strategic partnerships with major chipmakers like Nvidia (NASDAQ: NVDA) have strengthened SMCI’s competitive position, though recent reports suggest Nvidia may be shifting orders to other suppliers due to SMCI’s recent challenges.
Financial performance and valuation
SMCI’s financial performance remains solid year-over-year, with revenue climbing from $3.3 billion in fiscal 2020 to $14.9 billion in 2024. However, unaudited results for Q1 fiscal 2025 revealed $6 billion in revenue and adjusted earnings of $0.73 per share, missing analyst expectations and casting further doubt on SMCI’s financial stability.
The company has not provided a timeline for releasing its delayed annual report, making it likely to miss the November 16 deadline, a move that would push the stock to over-the-counter markets and likely lead to steep losses.
“The Company continues to work diligently on matters related to the Form 10-K for the fiscal year ended June 30, 2024 (the “Form 10-K”), but remains unable at this time to predict when the Form 10-K will be filed.”-the company said
Trading at forward earnings multiple of just 8.9x, as retrieved from StockAnalysis, SMCI appears attractively priced. However, this discount largely reflects the ongoing uncertainties surrounding the company.
For investors, SMCI presents a high-risk, high-reward scenario. Its attractive valuation and leadership in AI server solutions contrast sharply with significant concerns over accounting transparency and governance.
Regulatory uncertainty and a potential Nasdaq delisting add to the downside risk. Nonetheless, SMCI’s current technical levels may offer a compelling entry for those willing to tolerate substantial risk.
Featured image via Shutterstock
