SuperMicro Shares Soar After Special Committee Review. Is It All Clear to Buy the Stock?

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Super Micro Computer (NASDAQ: SMCI) continued its rollercoaster ride this year, most recently seeing a surge in its shares after saying an independent special committee found no wrongdoing in the company’s accounting. The stock started the year hot, quadrupling within the first three months, but after questions popped up surrounding its accounting, the stock gave back all its gains and more and found itself in negative territory at points in November.

This latest news spurred a big rally in stock, which is now up about 45% on the year, as of this writing. However, the stock moves very quickly, so by the time you’re reading this, it could be different.

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Let’s take a closer at the wild ride that Supermicro’s stock has been on as well as this latest news to see if it’s time to buy the stock or perhaps take some profits.

Supermicro stock’s early gains were driven by the strong growth the company was seeing from the artificial intelligence (AI) infrastructure buildout. The company designs and assemble servers and rack solutions for customers, and it found a niche by being one of the first companies to offer direct liquid cooling (DLC) for servers. Graphic processing units (GPUs), such as those made by Nvidia, can run very hot and need a method to be cooled.

Before questions surrounding its accounting rose, the company was dealing with gross-margin issues, which hurt its stock after its Q2 results. Supermicro’s business is fairly narrow-margin to begin with, and it has a lot of competition. Margins come under even more pressure as it decided to cut prices to gain business while not compensating for the costs of ramping up its DLC business.

With the stock feeling the effects of margin pressures, short-seller Hindenburg Research swept in, asserting that Supermicro manipulated its accounting and committed other malfeasances. The stock took a hit on the report, which was made worse when the company decided to delay the filing of its fiscal year 2024 annual report. The company had been found guilty of accounting manipulation back in 2020 and was fined by the Securities Exchange Commission (SEC), so the delay was not a good look.

The stock came under more pressure in the fall after a report from The Wall Street Journal said that the Department of Justice (DOJ) was also investigating the company. Neither the DOJ nor the company have confirmed whether this is true.

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