The share price of Super Micro Computer (NASDAQ: SMCI) is trading in the green after weeks of losses as investors await an update on the company’s remediation plan.
SMCI is up over 12% in pre-market trading on November 18 at $20.84. This move extended Friday’s gains, which saw the stock end the day up 3.16%. Supermicro is attempting a recovery, having plunged almost 35% year-to-date from as high as $118.
Why SMCI stock is rallying
This momentum is a welcome development, considering shares of Super Micro have suffered significant capital outflows due to regulatory concerns following allegations of accounting manipulation.
Picks for you
Investors are seemingly reacting positively to news that Super Micro intends to file a plan for its delayed annual report today, November 18. This move could help the information technology giant avoid delisting from Nasdaq.
Notably, Nasdaq warned SMCI that it would face delisting if it did not file the report or submit a plan by the November 18 deadline.
The update is highly anticipated, and if Nasdaq deems it sufficient, the exchange could grant SMCI more time to address its financial reporting delinquencies. On the other hand, insufficient action could lead to delisting proceedings.
A potential Nasdaq delisting could have severe financial consequences for SMCI. For example, its $1.7 billion in convertible notes could become due immediately, straining its $2.1 billion cash reserves. Additionally, trading on over-the-counter (OTC) markets would restrict access to capital, creating liquidity challenges and dimming the company’s prospects.
According to an analysis by Livy Investment Research, if Nasdaq resolves to delist the company, the decision could take up to a month. However, the situation is further complicated, given SMCI’s rocky relationship with Nasdaq.
For instance, in 2018, the company endured nearly 18 months of back-and-forth negotiations before being delisted for repeated filing delays. This time, the absence of a signing auditor adds another layer of complexity, making it harder for SMCI to file overdue financials or secure a 180-day extension.
Impact of SMCI’s past troubles with Nasdaq
Livy Investment Research also highlighted that with a looming February 2025 deadline and high stakes tied to credit agreements and stakeholder confidence, Nasdaq may adopt a stricter stance given SMCI’s prior patterns of delinquency.
“And Nasdaq knows and will consider all of this. Worst, it also knows about SMCI’s patterns of repeated delinquency from the last rodeo. Nasdaq could very well be on the way to telling SMCI to go home, fix your bed, then come back again later (i.e. delist first then apply to be relisted once filings are brought back up to date),” the research platform noted.
In this context, it can be argued that the positive momentum around the stock might not last long, as it appears to be driven by speculative optimism.
The company’s challenges were further compounded when SMCI announced delays in its annual report, citing the need for additional time to hire a new auditor following Ernst & Young’s resignation.
This ongoing failure to update financials has been widely seen as a disregard for stakeholders, including customers, investors, and creditors.
Adding to the concern is the potential ripple effect on the broader artificial intelligence sector. Super Micro plays a significant role as a key customer for chipmaker Nvidia (NASDAQ: NVDA), with SMCI-related orders now representing 25% of Nvidia’s total supply, underscoring their intensified collaboration.
Featured image via Shutterstock
