The 45% decline in Super Micro Computer (SMCI) stock this past week has wiped out its gains for the year. It’s a sharp reversal for the once high-flying stock that had been the best-performing security in the benchmark S&P 500 index only a few months ago. Between January and mid-March, SMCI stock rose 320% as the hype surrounding artificial intelligence (AI) reached a fever pitch.
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As demand rose for Super Micro Computer’s high-efficiency servers that run AI applications and models, so too did the company’s stock, outpacing other high-fliers such as chipmaker Nvidia (NVDA) and data analytics company Palantir Technologies (PLTR). This led to SMCI performing a stock split on a 10-for-1 basis a month ago.
The growth in Super Micro Computer’s market capitalization was enough to get the stock added to the S&P 500 earlier this year, where it immediately became the top-performing security in the index. But now, all of its gains have been wiped out and SMCI stock is down 7% on the year.
A Growing Accounting Scandal
Investors have abandoned Super Micro Computer amid a growing accounting scandal that has wiped out $55 billion in market capitalization and put the company in danger of being delisted from the Nasdaq exchange on which it trades.
In August, short-seller Hindenburg Research issued a scathing critique of Super Micro Computer, accusing the company of accounting manipulation. Super Micro Computer disputed the Hindenburg report but delayed filing its annual report with the U.S. Securities and Exchange Commission (SEC). That delay led to a notification from the Nasdaq indicating that the company was not in compliance with its listing rules.
The bottom fell out of SMCI stock this past week when the company announced that it had lost its second auditor in less than two years. Ernst & Young resigned as Super Micro’s accounting firm 17 months after taking over from Deloitte & Touche. Ernst & Young said it was “unwilling to be associated with the financial statements prepared by management” at Super Micro Computer.
Is SMCI Stock a Buy?
Super Micro Computer has a consensus Hold rating among 12 Wall Street analysts. That rating is based on three Buy and nine Hold recommendations issued in the last three months. There are no Sell ratings on the stock. The average SMCI price target of $64.49 implies 147.37% upside potential from current levels.
