(Bloomberg) — Super Micro Computer Inc. started the year as a hot trade in artificial intelligence. But just eight months after shares hit an all-time high, investors are wondering whether the server maker will be banned by Nasdaq Inc. will be delisted and booted from the S&P 500.
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The troubled company – which has seen its shares plummet more than 75% since March – will provide a business update after the close on Tuesday. Top of mind is what it says about meeting Nasdaq Inc.’s compliance obligations. following the resignation of accountant Ernst & Young LLP last week. The auditor cited concerns about Super Micro’s commitment to integrity and ethics — a blow that followed a U.S. Department of Justice investigation and a damaging short-seller report earlier this year.
Super Micro’s listing status was already looking shaky after it failed to file its annual 10-K report by the August deadline. Nasdaq rules give the company until mid-November to submit a plan to bring it back into compliance, and if that plan is approved it could get additional time — pushing the deadline back to February 2025. But the resignation of Ernst & Young makes that more challenging. .
“I think they’ll probably end up being delisted just because of the timelines involved,” Wedbush analyst Matt Bryson said in an interview. “How do they get their 10-K out in a few months if they don’t have an auditor and their last auditor resigned?”
Representatives for Super Micro, Nasdaq and S&P Global, which owns the S&P 500 Index, declined to comment.
A delisting from the Nasdaq stock exchange would be the latest development in a tumultuous year. Shares of Super Micro were flying high in early 2024, as Wall Street excited AI-powered demand for its high-performance data center servers and the company won inclusion in the S&P 500. with the 10,000 filing delay, followed by news that regulators are investigating an ex-employee’s claims that the company tried to overstate its revenue.
At the time of Ernst & Young’s resignation, Super Micro said it does not expect the matter to result in restatements of previously issued financial reports, and that it has begun the process of identifying another auditor.
But some analysts are more cautious. “We now believe there is a significant risk that prior financial statements will need to be restated once a new public accounting firm is hired,” Needham analysts led by N Quinn Bolton wrote last week, suspending coverage of Super Micro stock.
A delisting from Nasdaq could also lead to delisting from the S&P 500 – which would trigger forced selling of the shares by institutions, according to Bloomberg Intelligence analysts led by Woo Jin Ho. He added that about 24% of Super Micro’s shares are held in passive funds, and about 8% are held by S&P 500-related funds.
It would not be the first time that Super Micro has been delisted from the stock exchange. The company was taken private in 2019 after missing deadlines for filing a 10-K and several quarterly reports. It was cleared to rejoin in 2020. The same year, Super Micro resolved a U.S. Securities and Exchange Commission investigation into its accounting by paying a $17.5 million fine. Super Micro has neither admitted nor denied the regulator’s allegations as part of the settlement.
Wedbush analyst Bryson noted that the last time Super Micro was taken private, growth had stalled for two years. Customers may be spooked by financial problems as it could indicate disruption to the company’s ability to deliver products on time, he added.
Bloomberg Intelligence’s Jin Ho agrees. “While the impact on sales will not be immediate, risks for order cancellations will increase given the increasing number of alternative competitors for the still dominant position in AI servers for data centers,” he wrote.
Dell Technologies Inc. could be a potential beneficiary, he added.
Technical chart of the day
The shares of Palantir Technologies Inc. rose in premarket trading on Tuesday after the data analytics software company reported third-quarter results that beat expectations on “unwavering” AI demand. The company also raised its operating profit forecast in the current period, with analysts noting strong demand for AI applications from enterprise customers.
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–With help from Subrat Patnaik.
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