Super Micro Computer Faces Challenges Amidst AI Boom

Super Micro Computer (NASDAQ: SMCI) is emerging as a significant player in the rapidly developing field of artificial intelligence (AI). The company has experienced impressive revenue growth, with increases seen in triple digits over recent quarters. Specializing in equipment such as workstations and servers for AI data centers, Supermicro is also making strides in liquid cooling technology. From this perspective, the outlook appears promising.

However, recent challenges have placed substantial pressure on Supermicro, resulting in a roughly 40% decline in stock value over the past two and a half months. The initial blow came from a short report by Hindenburg Research that raised concerns about the company. This was followed by delays in filing financial reports and the resignation of its auditor, raising fears of potential delisting by Nasdaq. Such issues may also deter new investors from entering the stock.

On a more positive note, Supermicro has reported some encouraging developments. The company has appointed a new auditor to expedite its financial reporting and submitted a compliance plan to Nasdaq. The stock remains active as Nasdaq reviews this plan. With these factors in mind, investors may wonder if Supermicro has turned the corner. Two key areas warrant close observation.

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1. The Path to Financial Reporting Compliance

On November 18, Supermicro announced the hiring of BDO U.S.A. as its independent financial auditor. This firm will work diligently to help the company come back into compliance. Supermicro fell behind on its two critical financial reports: the 10-K for the fiscal year ending June 30 and the 10-Q for the quarter ending September 30.

In its compliance plan submitted to Nasdaq, Supermicro expressed confidence that it would be able to file both reports within the timeframe allowed by Nasdaq staff. Tracking their progress will be crucial. Successful filing would not only secure Supermicro’s listing status but also give investors a transparent view of the company’s financial health. If the upcoming reports align with previous estimates, this could encourage renewed investor interest.

Nevertheless, risks remain. Missing the deadline set by Nasdaq or failing to meet the compliance plan could result in delisting. If the audited reports disappoint once released, the stock could face further declines.

2. Impact of Nvidia’s Blackwell Launch

The launch of Nvidia‘s Blackwell architecture is highly relevant for Supermicro. The company relies on Nvidia’s cutting-edge technology in the equipment it offers. For instance, customers seeking servers that utilize Blackwell chips can procure these through Supermicro, signifying that strong demand for Blackwell directly supports Supermicro’s sales.

Nvidia has already begun shipping sample graphics processing units (GPUs) and equipment to select clients, with plans to increase production in the current quarter. Supermicro, being a key partner for Nvidia, is poised to benefit from this trend, but the company must first address its recent challenges.

Concerns arise, however, that Nvidia might reroute orders to other competitors, given Supermicro’s recent struggles. There are even examples of companies, like Elon Musk’s xAI, that have shifted their server contracts from Supermicro to Dell as reported by UDN.com. It remains to be seen how widespread such shifts might be, but investors should monitor this situation closely, particularly as they await revenue updates in Supermicro’s next earnings report.

The potential for growth linked to the Blackwell launch is significant for Supermicro, but its current predicaments could limit this opportunity.

What Lies Ahead for Supermicro?

Supermicro’s swift actions to address its issues are certainly encouraging. However, it’s premature to declare that the worst is over. True confidence will only emerge once Supermicro effectively navigates its financial reporting challenges and satisfies Nasdaq, while also reassuring investors with solid financial data.

Additionally, monitoring continued revenue growth will be crucial. The success of Blackwell could play a vital role in this ongoing evaluation.

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Adria Cimino holds no positions in any of the mentioned stocks. The Motley Fool has positions in and recommends Nvidia. Please see our disclosure policy for further details.

The views expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.