After-Hours Surge: Super Micro Computer Stock Rallies on Auditor Change

Super Micro Computer stock (NASDAQ: SMCI) jumped nearly 40% in after-hours trading on Monday after announcing two significant moves: hiring a new public auditor and submitting a compliance plan to the Nasdaq stock exchange. This could help the company avoid potential delisting while the Nasdaq reviews the compliance plan. Super Micro has appointed BDO as its new auditor, replacing Ernst & Young, which resigned last October due to concerns over the company’s financial records. The company also plans to file its overdue 10-K report for the fiscal year ending in June and its quarterly filing for September, although a specific timeline has yet to be announced. If Nasdaq approves the compliance plan, Super Micro may extend its deadline to regain compliance until February of next year. With these developments, is it time to take a closer look at Super Micro stock?

Over the past four years, SMCI stock has outperformed the broader market each year. In 2021, returns reached 39%, followed by an impressive 87% in 2022 and a staggering 246% in 2023. The Trefis High Quality (HQ) Portfolio, which includes 30 stocks, has been less volatile and has consistently outperformed the S&P 500 during this same period. What accounts for this discrepancy? Generally, HQ Portfolio stocks have shown stronger returns with lower risk than the benchmark index, avoiding the severe fluctuations that characterize SMCI’s performance. Given the current uncertain macroeconomic climate, including potential rate cuts and multiple ongoing conflicts, could Super Micro see strong growth ahead?

Super Micro Computer specializes in selling server systems, management software, and maintenance services. It has particularly thrived in the generative AI sector, with demand for its products soaring alongside high-profile clients like Nvidia. Revenues more than doubled in FY’24, and analysts estimate an additional 80% growth for the current fiscal year. Although the server market is highly competitive, Super Micro stands out with its offerings, which are perceived as more customizable and energy-efficient than those of competitors.

The long-standing partnership with Nvidia further strengthens Super Micro’s position, as the company can likely integrate Nvidia’s latest chips with its servers faster than peers. Additionally, Super Micro is increasing its range of premium products, including liquid-cooling systems, while also expanding manufacturing capabilities. Currently, the stock trades at approximately 10 times forward earnings, a reasonable multiple given the robust growth prospects.

Nevertheless, the promising outlook for Super Micro is tempered by serious corporate governance concerns and doubts about its financial reporting. Hindenburg Research highlighted several issues with the company’s accounting practices in August, and reports surfaced in late September indicating that the U.S. Justice Department may be investigating Super Micro, although the inquiry was still in its early phases. This is not the first time Super Micro has faced such scrutiny; in 2018, it was delisted from Nasdaq following an SEC investigation into its revenue recognition, regaining its listing two years later after settling with the commission.

While the appointment of a new auditor represents progress, investors should consider why a major auditing firm like Ernst & Young chose to step back from the company’s financial statements. The history of delayed reports and expressed concerns raises questions about trust. Despite a seemingly reasonable valuation today, issues surrounding internal controls and accounting practices may jeopardize Super Micro’s long-term viability and its ability to generate shareholder value. If financial inaccuracies exist, investors could be basing their decisions on misleading data. Given these complexities, it would be prudent for cautious investors to think carefully about their stance on SMCI stock.

[1] Returns as of 11/19/2024
[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.