Super Micro Computer Faces Delisting Risk Amid Financial Turmoil
Super Micro Computer stock (NASDAQ: SMCI) is facing a potential delisting from the Nasdaq in the coming days. The company must either file its delayed 10-K annual report or provide a compliance plan to the SEC by the November 16th deadline. After Ernst & Young resigned as its accountant in October, the situation does not appear favorable for the server hardware giant. Shareholders are left wondering about their options moving forward.
Historical Context: A Pattern of Compliance Issues
This isn’t the first time Super Micro has encountered delisting. Previously, in 2018, it was removed from the Nasdaq due to an SEC investigation regarding its revenue recognition practices. Following two years of settlement negotiations, the company was eventually relisted. Investors may be concerned about what delisting could mean for SMCI stock this time around.
Stock Performance: Mixed Results Amidst Challenges
Despite its current challenges, SMCI stock delivered impressive returns over the last three years. The stock saw returns of 39% in 2021, 87% in 2022, and an astounding 246% in 2023. In comparison, the Trefis High Quality (HQ) Portfolio, a collection of 30 stocks, significantly outperformed the S&P 500 each year during the same timeframe. The HQ Portfolio showed better returns with reduced risk, illustrating a stable performance path.
Implications of Delisting for Investors
If Super Micro stock is delisted, investors will still retain their shares, but trading would shift to the over-the-counter (OTC) markets, known as “Pink sheets.” However, OTC stocks come with their own set of challenges, including higher trading costs and decreased liquidity due to fewer buyers and sellers. Retail brokerages typically allow OTC trading, but added fees and wider bid-ask spreads can inflate costs for investors, making trading less appealing.
The core operations of Super Micro appear to be performing well. The company sells server systems and management software, benefitting from growing demand within the generative AI sector. Revenues more than doubled in FY’24, and estimates indicate an additional 80% increase for the fiscal year ahead. Nevertheless, shareholders should remain cautious. Concerns about the reliability of financial statements linger, especially in light of raised red flags surrounding accounting practices.
Potential Long-Term Effects on Business Relationships
The uncertainty surrounding Super Micro could impact its relationships with customers and suppliers. Companies may hesitate to finalize contracts with a firm facing financial instability. For instance, Nvidia, a major GPU supplier, might decide to allocate its products to more stable companies like Dell instead of Super Micro. Such shifts could further affect the company’s revenue and profit margins.
| Returns | Nov 2024 MTD [1] |
2024 YTD [1] |
2017-24 Total [2] |
| SMCI Return | -39% | -37% | 534% |
| S&P 500 Return | 5% | 25% | 167% |
| Trefis Reinforced Value Portfolio | 6% | 21% | 801% |
[1] Returns as of 11/15/2024
[2] Cumulative total returns since the end of 2016
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
