Shares of Super Micro Computer (SMCI), a prominent player in the AI server market, plunged by 15% on Thursday following a report from The Wall Street Journal indicating that the company is under investigation by the U.S. Department of Justice (DOJ) for potential accounting irregularities. This significant drop adds to the company’s recent volatility amid increasing scrutiny over its financial practices.
The Wall Street Journal’s report, citing unnamed sources, revealed that the DOJ’s investigation stems from allegations initially highlighted in an August report by Hindenburg Research. The short-selling firm raised concerns about “glaring accounting red flags,” undisclosed related party transactions, and potential violations of sanctions and export controls. Super Micro has opted not to comment publicly on the ongoing investigation, leaving shareholders and analysts to speculate about the implications for the company’s financial health.
Super Micro specializes in AI server equipment powered by Nvidia’s GPUs and has reportedly become a key supplier for major tech companies like Meta Platforms. The company experienced a surge in demand earlier this year as the tech sector increasingly turned to AI solutions, driving its stock to remarkable highs. Despite Thursday’s decline, Super Micro shares have still shown a 57% increase from the previous year, reflecting the overall growth in the AI-driven market.
This downturn occurs after Super Micro’s stock hit a peak of over $1,200 back in mid-March, shortly before it was included in the S&P 500 index. The stock has seen a series of declines since, particularly after the company missed Wall Street’s earnings expectations for its fourth quarter, reporting earnings per share of $6.25 compared to the anticipated $8.25.
CEO Charles Liang addressed concerns regarding the company’s operational integrity in a letter to clients, asserting that the recent challenges do not impact their production capabilities or the services provided to customers. “Neither of these events affects our ability and capacity to deliver the innovative IT solutions that you rely on every day,” Liang stated, emphasizing their continued operational strength.
Despite facing these headwinds, 37% of Wall Street analysts maintain a recommendation to buy the stock, with a consensus price target suggesting potential growth to $685 over the next year. This mixed outlook highlights the ongoing volatility within the tech sector and the broader implications of regulatory scrutiny on emerging tech companies that are integral to the AI revolution.
Analysts remain hopeful for a recovery, but the uncertainty surrounding the DOJ investigation and prior earnings challenges introduces a cautious sentiment in the marketplace. For investors and stakeholders of Super Micro, staying informed on upcoming developments is critical as the company navigates these turbulent waters in the highly competitive AI landscape.