Super Micro Computer (NASDAQ:SMCI) shares have taken investors on a rollercoaster ride in 2024, to say the least. The stock soared nearly 320% in the first two and a half months of the year, fueled by surging demand for its AI server and storage solutions. But just as quickly, the tide turned: from a mid-March peak to a mid-November low, the stock has plummeted by 85%, wiping out its earlier gains – and then some.
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Among the headline-grabbing news was the departure of SMCI’s accounting firm, Ernest and Young. E&Y dropped quite the bombshell upon resigning, stating that they were “unwilling to be associated with the financial statements prepared by management.”
This came on the heels of allegations of financial improprieties from Hindenburg Research, a delay in filing its annual report with the SEC, and a Wall Street Journal report that the U.S. Department of Justice is investigating SMCI. Together, these setbacks have placed SMCI at risk of being delisted from NASDAQ.
And yet, the far-from-boring stock staged a remarkable comeback over the past week and a half. The appointment of BDO USA as its new auditor, coupled with optimism surrounding the company’s compliance plan to avoid delisting, has reignited investor confidence.
Top investor JR Research, ranked in the top 1% of TipRanks’ stock pros, believes this renewed confidence is justified. “SMCI demonstrated its urgency and resolve with its new auditor appointment to overcome its previous challenges expeditiously,” the investor asserts.
Its not all sunshine and rainbows, however. JR reminds investors that there are significant performance and compliance issues that remain unresolved.
On the business side of the ledger, SMCI could see its sales diminish as competition for its AI servers from Dell and Hewlett Packard heats up. The investor notes that Elon Musk’s xAI has reportedly decided to purchase $6 billion worth of AI servers from Dell instead of SMCI.
The danger of delisting has not passed yet either, though the appointment of BDO “has bought the company valuable time.” NASDAQ could take up to two weeks to review the company’s compliance plan, with an expedited audit from BDO report likely needing to be submitted in February.
Even with these hurdles, JR sees a glimmer of opportunity. The investor highlights that Nvidia’s cutting-edge Blackwell AI chips, set to ramp up production through 2025, position SMCI as a potentially attractive bet. While fierce competition from Dell and HPE looms large, SMCI’s robust partnerships with hyperscalers and advancements in its DLC solutions could give it the competitive edge needed to remain a key player in the evolving AI market.
To sum it up, JR believes “the buying opportunity on SMCI has finally returned,” backing this view with a Buy rating. (To watch JR Research’s track record, click here)
Wall Street, however, is keeping its expectations in check. With 2 Buy, 6 Hold, and 2 Sell recommendations, the consensus rating is a lukewarm Hold (i.e. Neutral). The stock’s consensus price target of $39.43 suggests a ~19% upside from its current levels. That upside, however, doesn’t justify the risk in the eyes of the analysts. (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.
