Super Micro Computer (NASDAQ:SMCI) saw a positive market response following the announcement that an internal investigation found no evidence of misconduct by the company’s leadership. But before popping the champagne, it’s worth noting that the Special Committee’s review wasn’t exactly a ringing endorsement.
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Although the fraud allegations were put to rest, the report left lingering concerns. The committee pointed to “process lapses” and “inconsistent or vague” guardrails, hinting that the company’s internal controls may still fall short of best practices.
Looking ahead, the AI server provider still faces two big hurdles: getting audited by its newly appointed firm, BDO, and submitting overdue financial reports to NASDAQ. Failure to clear those checkpoints could put SMCI at risk of delisting.
Against this backdrop — and with SMCI’s stock soaring 144% over the past three weeks — top investor Henrik Alex, who ranks in the top 3% of TipRanks’ stock experts, sees an opportune moment to lock in gains.
“With the easy money on the rebound trade having already been made and muted expectations for the company’s Q2/FY2025 report in February, I am downgrading my rating from ‘Hold’ to ‘Sell’,” writes the 5-star investor.
As a former auditor, Alex offers a unique perspective on the Special Committee’s findings — and he’s far from impressed. For instance, among the findings, the investor criticizes the company’s decision to rehire several former employees who left the firm following SMCI’s delisting from NASDAQ in 2018, including the former Chief Financial Officer.
“Rehiring or entering into consulting agreements with employees who were involved in past accounting deficiencies doesn’t look like ‘reasonable business judgment’,” Alex opined.
Adding to the uncertainty, the Special Committee’s report may not be the final say. SMCI’s new auditor, BDO, could reach very different conclusions, which Alex sees as a material risk.
Furthermore, even if SMCI clears its financial hurdles, the company still faces operational challenges. Preliminary Q1 FY 2025 results were labeled “weak,” and the guidance for Q2 fell short of expectations, further fueling Alex’s cautious outlook.
Expecting share prices to fall as the market begins to focus once again on SMCI’s “underwhelming” operating performance, Alex, as mentioned above, rates SMCI stock a Sell. (To watch Alex’s track record, click here)
Meanwhile, Wall Street analysts are taking a wait-and-see approach. SMCI claims a Hold consensus rating, backed by 2 Buy, 5 Hold, and 2 Sell recommendations. The stock’s 12-month average price target of $38.57 points to a potential downside of 12%. (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.
