A new Hindenburg short report alleges that all may not be well with the high growth of Super Micro Computer Inc SMCI and its presence in the artificial intelligence sector.
What Happened: Super Micro Computer has been one of the hottest AI stocks over the last year, with shares up more than 100%. The stock has also seen heavy interest from Benzinga readers, ranking as one of the top 10 most-searched tickers in the first half of 2024.
Hindenburg accuses Super Micro Computer of accounting manipulation, sibling self-dealing and sanctions evasion in a short report issued Tuesday.
The short report includes the findings from litigation records, company records, and interviews with former senior employees.
"In 2018, Super Micro was temporarily delisted from Nasdaq for failing to file financial statements. By August 2020, the company was charged by the SEC for ‘widespread accounting violations,' mainly related to $200+ million in improperly recognized revenue and understated expenses, resulting in artificially elevated sales, earnings and profit margins," the report reads.
Benzinga contacted Super Micro Computer for comment on the short report.
Hindenburg says less than three months after Super Micro paid a $17.5 million settlement to the Securities and Exchange Commission (SEC), the company began re-hiring executives who were previously involved int the accounting scandal.
"Almost all of them are back. Almost all of the people that were let go that were the cause of the malfeasance," a former Super Micro salesperson told Hindenburg.
Pressure to meet company quotas led to partial shipments or defective products being shipped, according to former employees and the report.
"I don't think the behavior of the company in many ways has changed in the 5 years since I started, and I started shortly after the delisting problem," a former employee told Hindenburg.
Super Micro Computer suppliers Ablecom and Compuware are controlled by Super Micro CEO Charles Liang's brothers, according to the report, with $983 million paid to the companies over the last three years. Ablecom is partially owned by Liang and his wife.
The report alleges several more disclosed and undisclosed business relationships with companies controlled by Liang's relatives. Hindenburg alleges this poses accounting risks.
The report also shows reports of product sales to countries with bad U.S. relations. The company pleaded guilty to a felony count of exporting banned components to Iran in 2006. The report alleges Super Micro has continued to export components to Russia since the country was faced with an export ban by the U.S.
The company also has a joint venture with a Chinese state-run company on the U.S. government watchlist, according to the report.
What's Next: Along with allegations of accounting issues and family relationships that could lead to incorrect financials and irregularities, Super Micro Computer faces growing competition, according to the report.
Dell has won deals from CoreWeave, Digital Ocean, and Tesla, who were previously large Super Micro customers, according to the report. Amazon AWS was also a previous customer who allegedly cut ties due to delivery issues, a former employee said.
"We believe Super Micro is a serial recidivist. It benefitted as an early mover but still faces significant accounting, governance and compliance issues and offers an inferior product and service now being eroded away by more credible competition," Hindenburg said.
SMCI Price Action: Super Micro shares are down 2% to $551.12 on Tuesday, versus a 52-week trading range of $226.59 to $1,229.00.
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