Super Micro Computer (NASDAQ:SMCI) has seen its shares rally as the AI server company works to restore its reputation following allegations of accounting irregularities.
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A significant boost for investors came with the announcement that BDO USA has stepped in as the new auditor, filling the gap left by Ernst & Young’s departure. Additionally, SMCI has submitted a compliance plan to NASDAQ, aiming to fulfill listing requirements and maintain its position on the exchange.
Yet, cracks in the comeback narrative are already showing. Tuesday’s 10% slide reflects lingering skepticism, echoed by investor Johnny Zhang, who doubts the rally’s durability.
“Many uncertainties still remain, including the timeline for completing its filings and, more importantly, the risk of downward revenue revisions due to potential order reductions by major customers,” the investor explains.
Zhang is concerned that the bad press has caused SMCI’s clients to lose faith in the company’s reliability. This includes Nvidia, with the investor citing a recent report claiming that the undisputed industry leader is branching away from SMCI in order to reduce potential supply disruptions.
Any loss of orders would hit SMCI on both sides of the accounting ledger, points out Zhang, as accumulating inventories – currently $5 billion on the company balance sheet – could lead to impairment losses and increased pricing pressure that would diminish profit margins.
In addition, Zhang believes that the recent rally was not caused by long-term investor confidence in SMCI’s prospects, but rather by short sellers who were covering their positions.
Zhang is therefore adopting a wait-and-see approach while monitoring future earnings reports, management updates – particularly regarding Nvidia’s Blackwell volumes – and NASDAQ’s response to the compliance plan.
In the meantime, Zhang advises investors to consider locking in gains while the opportunity lasts, emphasizing the risks of holding amid ongoing uncertainties.
“For those who bought the dip and have seen a decent return, it may be wise to take profits and remain on the sidelines until the next earnings release,” Zhang concludes, assigning a Sell rating to SMCI. (To watch Zhang’s track record, click here)
Wall Street’s outlook for SMCI reflects a divided stance. The stock claims a Hold (i.e. Neutral) rating based on 2 Buy, 6 Hold, and 2 Sell recommendations. Analysts project an average price target of $39.43, implying an upside potential of 14.5% from current levels. (See SMCI stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured investor. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
