Super Micro’s $50 Billion Stock Collapse Highlights AI Hype Risks
In March, Super Micro Computer saw its stock soar dramatically after being added to the S&P 500, rising more than 2,000% over two years and even eclipsing Nvidia’s impressive gains. However, this trajectory shifted swiftly, with Super Micro reaching a high closing price of $118.81 shortly after the index change, only to collapse by approximately 75%, reducing its market cap to around $17 billion. This situation highlights a significant warning sign in the public markets that the fervor surrounding artificial intelligence may not be entirely warranted.
Super Micro serves as a major supplier for Nvidia-based server clusters utilized for training and deploying AI models. The company’s stock plummeted 33% in one day after it reported that auditor Ernst & Young refused to endorse its financial statements, causing it to fall further by 12% the subsequent day. The reverberations of this drop have led to fears of delisting from Nasdaq, as analysts warn of heightened risks absent an auditing firm.
Following a turbulent brief tenure with Ernst & Young, which took over from Deloitte & Touche in March 2023, Super Micro’s management has been thrust into turmoil, with the resignation raising significant concerns about financial integrity. A spokesperson from Super Micro expressed disagreement with the audit firm’s decision but remains committed to finding a new auditor.
Historically, Super Micro lurked in the shadows of Silicon Valley as a somewhat obscure data center company. Its fortunes dramatically shifted after the launch of OpenAI’s ChatGPT in late 2022, which spurred a significant wave of investment in AI processors from Nvidia. As a result, Super Micro emerged as one of the key beneficiaries of the AI boom, along with Dell, by packaging high-performance graphics processing units (GPUs) in tailored servers. Despite experiencing a revenue doubling in the previous three quarters, the company has not filed official financial disclosures with the SEC since May.
Wall Street sentiment has soured considerably since the S&P’s announcement in March. Super Micro’s stock has dropped at least 10% on multiple occasions, with one notable 19% decline occurring on August 28 when management announced delays in filing its annual report due to internal controls issues over financial reporting. Subsequently, short seller Hindenburg Research revealed a short position, claiming indicators of accounting manipulation. Reports of a Department of Justice investigation have surfaced, adding to investor apprehension.
Following the notification of a compliance breach with Nasdaq rules due to these audit difficulties, Super Micro has until mid-November to either file its overdue report or present a plan for regaining compliance. This hurdle poses a significant obstacle, and concerns persist regarding overdue filings that could lead to delisting scenarios. Super Micro previously faced a delisting from Nasdaq in 2018, compounding market worries.
Wall Street analysts have now shifted to a cautious stance regarding Super Micro’s future. The company’s inability to file its 10K report timely has compounded fears about ongoing profitability, with analysts citing numerous challenges resulting from recent developments. As the stock experiences its steepest sell-off since 2018, the company hinted at an upcoming press release regarding business updates.