Few stocks have given investors more of a rollercoaster ride in one year than stocks Super microcomputer(NASDAQ:SMCI). At one point, the stock was up as much as 318% from its 2024 entry point. Just a month ago, it was down 36% year to date. Now, as I write this, the price is up again by about 45% this year.
The reasons behind these big moves were actually sound, given what investors knew at the time. But now investors want to know if Supermicro can regain the $118 high it reached earlier this year.
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Super Micro Computer has become a popular stock in recent years due to its activities. Similar to the old winner of artificial intelligence (AI). Nvidia (NASDAQ: NVDA)Supermicro makes components that fit into powerful computer servers that train AI models. Supermicro also makes the components that make a server function, such as the physical racks and cooling infrastructure.
While they don’t have as high a margin as Nvidia’s GPUs, these are still necessary products, and Supermicro saw a surge in demand early this year. This demand pushed the stock to lofty heights in March when it reached a stock price of $118 per share. However, this enthusiasm was too great and Supermicro was gradually sold off throughout the year as investors took profits.
The stock continued to have a successful year until late August, when Hindenburg Research published a short report alleging that Supermicro was guilty of some degree of accounting fraud. To make matters worse, Supermicro announced the next day that it was delaying the filing of its year-end 10-K report to assess the “design and operational effectiveness of its internal controls over financial reporting.”
This marked the beginning of the stock’s fall, and further events – including the Justice Department opening an investigation into the company and the company’s auditor, Ernst & Young, resigning – made it seem as if the stock was doomed. However, new information has caused the stock to recover significantly.
A special committee, consisting of a member of Supermicro’s board of directors, a legal team and a forensic accounting team from Secretariat Advisors, found no misconduct in the accounting practices, although it did recommend replacing Supermicro’s CFO (a process currently underway the hallway). This news solved almost all the issues that caused Supermicro to collapse in recent months, but the stock is still far from its peak.
Investors are hoping for a duller 2025 dominated solely by business news and not accusations. So, is the stock worth buying now that things seem to be clear?
After Ernst & Young resigned, Supermicro engaged BDO, a leading accounting firm. BDO has still not certified Supermicro’s first quarter 2025 results ended September 30, but is likely to do so soon.
Until then, we will have to rely on management’s preliminary results, which are unfortunately not good.
Supermicro had expected first-quarter sales of $6 billion to $7 billion, but preliminary results indicate sales will actually be between $5.9 billion and $6 billion. However, the preliminary EPS numbers are in the middle of guidance ranges, so the company’s earnings picture is still intact.
SMCI operating income (quarterly) data by YCharts.
For the second quarter, revenue is expected to be between $5.5 billion and $6.1 billion. That would be a quarter-over-quarter decline, something that shouldn’t happen given that the AI market is still booming. One problem could be that Nvidia is reportedly shifting some server hardware orders for its next-generation Blackwell GPUs away from Supermicro. That’s not a good sign.
So should investors open new positions in Supermicro after everything that happened? I would say no.
Even though management has taken the right steps to cleanse itself of accounting misconduct, there is simply no trust in the company. Furthermore, as sales remain below expectations, there could be other turmoil within the company, which is overshadowed by the various ongoing investigations. (The Justice Department is still completing its investigation.)
That’s why I avoid stocks. There are far too many other good AI investments to waste my time with an investment I can’t trust.
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Keithen Drury has no positions in the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.
Is Super Micro Computer ready for a comeback in 2025? was originally published by The Motley Fool
