Is SMCI's Big Drop A Warning Sign Or Buying Opportunity? Here's What Professional Traders Say

Shares of Super Micro Computer SMCI dropped more than 10% Thursday following a report that the Department of Justice is investigating the company for potential accounting violations. The stock, once a high-flyer during the AI market surge, has now plunged over 60% from its peak.

But, shares rebounded Friday, trading up 4.6% to $421.32 a share at the time of publication. Benzinga PreMarket Prep hosts, professional traders Joel Elconin and Dennis Dick, discussed the move on Friday's episode of the show. 

"It bounced where it needed to bounce," Dick said. "You got to $382, you did undercut it at $373, but you quickly got back above that… I think it's an overshoot to be honest… there's a lot of things we don't know, a lot of headline risk, but I think $373 from yesterday is safe."

Elconin called the situation “convoluted,” pointing to the uncertainty regarding the accounting situation. The DOJ's probe comes after a Hindenburg Research short report on the company, which also alleged accounting malpractices.

Read Also: Super Micro Computer Stock Falls On Report Of DOJ Probe: What To Know

But, the PreMarket Prep hosts pointed out the market's tendency to overreact to news headlines, which could help explain Friday's bounce. Super Micro Computer's stock had already declined following the release of Hindenburg Research's short report in late August, meaning that some of the negative news could have already been priced in.

Super Micro Computer's decline on Thursday came while other chip stocks rallied following strong quarterly results from Micron Technology MU. The iShares Semiconductor ETF SOXX, which tracks some of the biggest names in the sector, closed up more than 3.5% Thursday, while SMCI's stock closed down 12%. 

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