Gone are the days of Super Micro Computer (NASDAQ: SMCI) breaking records and mesmerizing investors with its incredible stock market advance, and the most recent developments indicate they aren’t coming back in the foreseeable future.
Specifically, on October 30, the fact that Supermicro’s auditor, Ernst & Young, resigned six days earlier became public knowledge.
The filing proved particularly shocking due to the reasons given by the firm as it stated it is:
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Resigning due to information that has recently come to our attention which has led us to no longer be able to rely on management’s and the Audit Committee’s representations and to be unwilling to be associated with the financial statements prepared by management, and after concluding we can no longer provide the Audit Services in accordance with applicable law or professional obligations.
The letter sent shockwaves through the stock market, and SMCI shares experienced a remarkable plunge in the extended session between October 29 and October 30 – a plunge that ensured that the company opened on Wednesday near its press time price of $34.68, a full 29.38% in the red.
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Nate Anderson, the founder of Hindenburg Research, simultaneously highlighted that the resignation letter is particularly strongly worded and hinted that Nvidia (NASDAQ: NVDA) may be hiding some skeletons in the closet due to SMCI being one of its clients:
The next question may be: What does Nvidia do about a client whose auditor suggests they lack “a commitment to integrity and ethical values?”
Anderson’s comments might be particularly significant as it was his firm that kickstarted – or rather, made public – Supermicro’s dizzying fall with a scathing report accusing the technology giant of ‘accounting manipulation, sibling self-dealing and sanctions evasion.’
SMCI also failed to help its own case by delaying the annual 10-K indefinitely.
The downward pressure was exacerbated by a string of Wall Street analyst downgrades at the time, and the loss of confidence was sufficient that SMCI shares regained hardly any ground before the auditor’s resignation, despite the September stabilization and high-profile comments indicating long-term bullishness.
SMCI stock price chart
Elsewhere, the fact that SMCI stock remains 72.08% in the green in the year-to-date (YTD) chart serves as a stark reminder of the strength of the rally in the first half of 2024.
Unfortunately for Supermicro hopefuls, it also raises the question of just how low the stock has yet to fall given the gravity of allegations, the length of the 10-K delay, and the harshness of Ernst & Young’s resignation letter.
Featured image:
Swat, Piotr. Supermicro company logo displayed on mobile phone. Digital Image. Konskie, Poland – May 27, 2024. Shutterstock, May 28, 2024. Date retrieved: October 30, 2024
