Super Micro Computer (SMCI) has been facing significant challenges recently, leading to a sharp decline in its stock price. EY had resigned as its auditor deepening investor worries about accounting practices at the artificial intelligence server maker. The Nasdaq-listed shares of the company, best known for making artificial intelligence (AI) servers, lost 47% over the last three days since.
Auditor Resignation
On Wednesday, October 30, 2024, Super Micro Computer, a $35 billion server maker based in Silicon Valley that has ridden the wave of AI enthusiasm, announced that EY had resigned as its auditor. This news caused the stock to plummet, closing down 10.5% on November 1, 2024, and resulting in a 47% decline over three days. EY‘s resignation came while they were in the middle of conducting an audit for the fiscal year ended June 30, 2024. The auditing firm stated that they were “unwilling to be associated with the financial statements prepared by management” at Super Micro Computer.
Accounting Concerns
The auditor’s resignation has raised serious concerns about Super Micro Computer‘s financial reporting and internal controls:
- Disagreements emerged between EY and Supermicro over the company’s adherence to internal control frameworks.
- This incident follows a delay in filing the company’s 10-K annual report and a short-seller attack from Hindenburg Research.
- Super Micro Computer has stated that it doesn’t anticipate having to restate any of its quarterly reports.
Stock Performance
The recent events have had a severe impact on Super Micro Computer’s stock:
- The stock has fallen 45% in the past week, wiping out all of its gains for the year.
- SMCI stock is now down 7% year-to-date, a sharp reversal from its previous status as the best-performing stock in the S&P 500 index.
- As of November 2, 2024, the stock closed at $26.05, down 10.51% for the day.
Market Reaction and Analyst Opinions
- The consensus among 12 Wall Street analysts is a Hold rating for SMCI stock.
- The average price target is $64.49, implying a potential 147.37% upside from current levels.
- However, investors should approach this target with caution given the ongoing accounting concerns.
Upcoming Earnings Report
Super Micro Computer is scheduled to release its fiscal first-quarter earnings after market close on Tuesday, November 5, 2024. This report will be crucial for investors, as management will need to provide a satisfactory explanation for EY‘s departure and clarity on when the 10-K will be completed.
