Supermicro Is A Shooting Star–Will It Flame Out Or Rise Like A Phoenix?

The investing world is full of shooting stars that blaze a profit trail across the sky and then flame out just as spectacularly. Tech company Super Micro Computer, aka Supermicro, desperately tries to avoid that fate. Benzinga looks at the factors that led to this stock's spectacular rise and the questions that may ultimately lead to its downfall. 

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Supermicro makes servers geared toward AI applications and the explosive growth in the field has made them a hot commodity for investors and AI-oriented businesses. The company's modular, build-to-suit-style servers and components can fit various AI needs. This allowed Supermicro to zero in on its clients' needs instead of forcing them to adapt their operations to Supermicro's specifications. 

Supermicro's position as a company that makes products AI depends on to function led to its share price surging for much of 2023. The high demand for Supermicro products led to a nearly 1,000% jump in revenue and a 1,030% increase in net income. The company announced a 10-1 stock split, resulting in a share price increase of 1,780%. Supermicro was even set to become an S&P 500 member. 

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Supermicro's fiscal year 2024 report, released in June, represented a company at its peak. It showed the company earned $14.9 billion in revenue, more than double 2023's $7.12 billion. Its reported Net income for the year was an impressive $1.21 billion ($20.09 per diluted share). That's also almost double the 2023 total of $640 million ($11.43 per diluted share). 

During the earnings call, CEO David Charles Liang indicated that he thinks his company is responsible for "70-80% of the world's direct liquid cool servers (DLCs) in the last several months." The signs and indicators were trending upward for Supermicro, but then strange things began to happen. 

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In August, Supermicro began making news for the wrong reasons when the forensic accounting and research firm Hindenburg Group released a report accusing Supermicro of numerous accounting irregularities. Almost immediately afterward, Supermicro filed notice that it would be late with its 10-K, a regulatory report that must be submitted to the SEC. 

That led to NASDAQ sending Supermicro a notice giving it 60 days to file its 10-k and return to compliance or face the possibility of being delisted. Then, Supermicro's auditors, Ernst and Young, stepped down in October due to a lack of faith in the financial information Supermicro was providing them. The bad news kept coming for Supermicro when its preliminary Q1 2025 earnings report fell short of expectations. 

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The result has been a steep slide for Supermicro shares, from a peak of $120 in March to its current price of $22.11. Although Supermicro maintains there has been no financial impropriety, it has yet to file the required 10-K. There is even word that Nvidia, one of Supermicro's largest clients, will begin looking for alternatives.

Shareholders must decide whether to cut their losses or hold on for the full ride. Supermicro makes a product in high demand, so there may be some upside in buying the dip. However, investing in a company struggling with regulatory requirements and accounting issues is a big risk. Even investors who like the upside here will likely proceed with extreme caution.

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