Super Micro Computer (SMCI) shares fell 2.5% on Thursday after rising as much as 9% the day before, continuing a week-long rollercoaster ride as investors swing between optimism about strong financial company numbers and caution about regulatory risks.
Allegedly, Super Micro is investigated by the Ministry of Justice about allegations of shady business practices, outlined in a scathing report by short-selling company Hindenburg Research at the end of August. That has put pressure on the stock, which has since hovered below $50 per share.
This week, SMCI climbed on positive reports from the AI server maker. Super Micro rose 16% on Monday after the company released figures showing strong demand for its products. The stock rose 12% on Thursday from the previous week.
Super Micro makes servers using Nvidia’s (NVDA) AI chips for data centers that power artificial intelligence software. The company said yes shipping servers with more than 100,000 Nvidia GPUs per quarter “for some of the largest AI factories ever built.”
Then, shares of SMCI fell 5% on Tuesday after a promising pre-market rally, with shares up as much as 7%. Futurum Group CEO Daniel Newman said investor euphoria over the company’s shipping data faded against the backdrop of Super Micro’s regulatory risk.
“I don’t think one piece of good news can easily undo several months of significant financial and regulatory scrutiny surrounding a company like this,” Newman said.
The August Hindenburg Report accused Super Micro of shoddy accounting, secret relationships between its CEO and the companies it does business with, and violations of U.S. export bans. For example, Hindenburg said Super Micro shipped servers to sanctioned Russian companies through shell companies, some of which were likely used by the military for the war against Ukraine.
The day after Hindenburg published his report, shares of Super Micro fell 20%. The company also delayed the filing of its annual 10-K report with the U.S. Securities and Exchange Commission. Super Micro’s woes continued with a Wall Street Journal report on an alleged DOJ investigation, sending its shares plummeting in late September.
Super Micro CEO Charles Liang said the Hindenburg report contained “false or inaccurate statements” and “misleading presentations of information we have previously shared publicly.” Liang said the company’s delayed 10-K filing would not impact the company’s fourth-quarter financial results, adding that Super Micro would address Hindenburg’s allegations “in due course.”
Super Micro’s share price rise this week shows the tension between its potential as a major player in the AI boom and its regulatory hurdles.
“This is a high-risk reward,” Newman said. “If they are acquitted of all this, there is a good chance that a nice step will emerge.” Of the Wall Street analysts tracking the stock tracked by Bloomberg, seven have a buy rating on the stock, while eleven maintain a hold rating. Only one analyst recommends selling the stock.
Analysts see the shares rising to $66 in the next twelve months.
The company reported mixed results in its latest earnings report. Super Micro’s most recent quarterly revenue of $5.3 billion for the three months ended June 30 barely missed Wall Street expectations but was up 143% from the previous year. On the other hand, Super Micro’s earnings per share for the company’s fourth fiscal quarter of $0.63 were much lower than analysts’ consensus forecast of $0.83, according to Bloomberg data.
Argus Research analyst Jim Kelleher told investors in an Oct. 3 note to buy the dip, noting that Super Micro “has been growing revenue and earnings much faster than the technology industry in recent years.” Wall Street expects Super Micro to report revenues of $6.5 billion for the period ending September 30, up 206% from the previous year. The company has not yet confirmed a date for its next earnings release.
“At this time, we believe that any accounting irregularities, should they arise, are minor and can be addressed while further financial filings are required,” Kelleher said, adding that Super Micro’s recent 10-to-1 stock split on October 1 “broadens the potential investor pool and should be positive in the long term.”
Despite his long-term optimism, Kelleher lowered his 12-month price target for the stock from $100 to $70.
Laura Bratton is a reporter for Yahoo Finance.
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