Super Micro Computer, Inc. (SMCI – Free Report) , once a star in the AI hardware space, has seen its stock nosedive 63.3% over the past six months. This stark decline stands in contrast to the Zacks Computer and Technology sector’s modest 3.8% gain and significant upticks of other AI leaders like Marvell Technology (MRVL – Free Report) and Broadcom (AVGO – Free Report) , which rose 63.8% and 34.4%, respectively.
6-Month Price Return Performance
Image Source: Zacks Investment Research
With Super Micro trading at $32.61 — 73.5% below its 52-week high — investors must be wondering if it is time to exit this faltering investment.
Accounting Controversies Erode Confidence in SMCI
Super Micro’s troubles began in August 2024 following a damning report from Hindenburg Research accusing the company of accounting manipulation, self-dealing and export sanctions evasion. These allegations not only triggered a massive sell-off but also cast a shadow over the company’s credibility.
The crisis deepened when Super Micro delayed its fiscal 2024 fourth-quarter report to reevaluate internal controls, a move followed by the resignation of its auditor, Ernst & Young. Although SMCI has appointed BDO USA as its new auditor, questions about its financial transparency and governance remain unanswered, leaving investors wary.
Delisting and Regulatory Risks for SMCI
The risk of delisting from the Nasdaq exchange adds to Super Micro’s mounting woes. The company faces a Feb. 25, 2025 deadline to file its delayed fiscal 2024 10-K and fiscal 2025 Q1 10-Q reports. Failure to comply could result in delisting, reducing liquidity and institutional interest in the stock.
Further compounding the situation are regulatory probes from the U.S. Department of Justice and the Department of Commerce. These investigations focus on potential breaches of export controls, specifically how NVIDIA Corporation’s (NVDA – Free Report) advanced AI graphics processing units reached China despite a ban. NVIDIA has asked Super Micro Computer and Dell Technologies to conduct spot checks on their Southeast Asian customers.
This regulatory scrutiny could result in severe penalties or operational disruptions, weighing on the company’s prospects.
Deteriorating Market Sentiment on SMCI
Super Micro’s reputation, once its greatest asset, now lies in tatters. In the competitive AI hardware market, where trust is paramount, the company’s controversies could alienate key clients and partners. Meanwhile, rivals like Dell Technologies and Hewlett Packard Enterprise are well-positioned to capitalize on the uncertainty surrounding SMCI.
The company’s declining credibility and operational uncertainties are also reflected in analysts’ earnings estimate revisions, signaling a lack of confidence in its near-term growth prospects.
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Find the latest EPS estimates and surprises on Zacks Earnings Calendar.
SMCI Discounted Valuation: A Trap in Disguise?
At a forward 12-month price-to-earnings (P/E) ratio of 9.27, Super Micro may appear undervalued compared to the Zacks Computer – Storage Devices industry average of 14.86. However, this low valuation likely reflects the company’s significant risks. Should delayed financial reports reveal further discrepancies or investigations lead to penalties, the stock could tumble further, rendering its “discount” a mirage.
Image Source: Zacks Investment Research
Conclusion: Selling SMCI Stock is the Wise Move
Super Micro’s steep decline is more than a temporary setback — it’s a warning signal. With unresolved accounting issues, the looming threat of delisting, regulatory probes and a tarnished reputation, the risks far outweigh any potential rewards.
Until Super Micro demonstrates substantial improvements in governance, transparency and financial stability, holding the stock remains a gamble. Investors would be wise to cut their losses and look for more reliable opportunities elsewhere in the tech sector. Currently, SMCI carries a Zacks Rank #5 (Strong Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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