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Super Micro Computer Stock Experiences Significant Decline Following Controversial Allegations
On Wednesday, shares of Super Micro Computer (SMCI) saw a dramatic decline of up to 26% after the company announced it would postpone the submission of its annual report for the fiscal year ending June 30.
Allegations Spark Market Reaction
This announcement came just one day after Hindenburg Research, a well-known short-selling firm, accused Super Micro of “accounting manipulation,” among other serious claims.
The company stated in an official release: “SMCI is unable to file its Annual Report within the prescribed time period without unreasonable effort or expense. Additional time is needed for SMCI’s management to complete its assessment regarding the design and operational effectiveness of its internal controls over financial reporting as of June 30, 2024.”
This year has been quite volatile for Super Micro’s stock. It surged from approximately $290 in early January to around $1,200 by March before being added to both the S&P 500 (^GSPC) and Nasdaq 100 (^NDX) indices in March and July respectively.
Despite this recent downturn—over 60% off its March peak—the stock remains up about 50% year-to-date. Additionally, a recent announcement revealed a planned 10-for-1 stock split effective October 1.
The Impact of Short Selling on Stock Performance
The decline continued with a nearly 2% drop on Tuesday after Hindenburg disclosed findings from their three-month investigation that highlighted significant accounting issues along with undisclosed related party transactions and export control failures. The firm also revealed it had taken short positions against Super Micro.
This data center server manufacturer gained investor interest this year due to its association with artificial intelligence technologies, particularly through partnerships with AI chipmaker Nvidia (NVDA).
Short Sellers Reap Profits Amidst Decline
The sharp fall in Super Micro’s share price resulted in over $1.07 billion in profits for short sellers by midday Wednesday according to S3 Partners’ analysis.
Ihor Dusaniwsky from S3 Partners noted that “short sellers have been increasing their positions since SMCI was trading around $900 back in April but have intensified their efforts since mid-July.” Since July 15 alone, short sellers have accumulated more than $2.85 billion in mark-to-market profits due to these price movements.
Caution Advised as Market Dynamics Shift
“We anticipate ongoing short selling activity as SMCI’s share price continues downward; however, investors should be wary of potential buy-to-cover actions when prices stabilize,” Dusaniwsky cautioned during an interview with Yahoo Finance on Wednesday.
An Analyst Downgrade Following Controversy
Citing Hindenburg Research’s allegations, CFRA analysts downgraded SMCI’s rating from Buy to Hold on Wednesday. Senior equity analyst Shreya Gheewala expressed concerns regarding potential reputational damage stemming from the delayed filing alongside unverified claims about accounting malpractice or sanction evasion: “While we believe there isn’t conclusive evidence supporting significant wrongdoing at this point…” she stated.
A History Under Scrutiny
The report by Hindenburg pointed out that despite settling with the SEC for $17.5 million back in August 2020 over widespread accounting violations, there has been little improvement within Super Micro’s business practices; notably many senior executives implicated were rehired post-scandal.
A former employee remarked: “Almost all those responsible are back.”
“Even after settling with the SEC, sales pressure led employees to engage in questionable practices like ‘partial shipments’ or dispatching defective products near quarter-end,” said Hindenburg based on interviews conducted.”
“” they concluded,” we view Super Micro as having repeated offenses.”
