Super Micro Computer (SMCI -3.90%) has undoubtedly been among the most talked-about stocks this year—a phenomenon fueled by its whirlwind journey. Initially, it was celebrated as a promising player in the booming artificial intelligence (AI) sector, poised for great success. However, recent months have cast a shadow over its potential, as concerns about weak accounting practices led to questions about its financial integrity.
Some investors are beginning to breathe easier after an independent board committee examined Supermicro’s operations and assured stakeholders that neither the management nor the board engaged in any misconduct. This reassurance has sparked a stock revival, yet it remains significantly lower, over 60% off its 52-week peak of $122.90.
If Supermicro manages to prove its critics wrong, it might be on the brink of remarkable gains in the coming months. Could a major upswing be in store for 2025?
Why have investors been cautious about Supermicro?
Three significant issues have been dragging down Supermicro’s valuation:
First, the company’s gross margins have been tightening. This trend is worrying because robust margins are essential for boosting profits. Without them, the stock appears less attractive to investors.
Second, in August, Hindenburg Research, a well-known short-seller, alleged that Supermicro was cooking the books to artificially enhance its financial figures.
Third, the sudden resignation of the company’s auditor, Ernst & Young, in October, heightened anxieties about Supermicro’s internal financial controls, leading to growing mistrust. Compounding these worries is the delay in the company’s quarterly and annual reports.
All these factors have taken a toll on the stock in the past months. But with the recent announcement that Supermicro has secured a new auditor, BDO, and a reassuring report from the special committee, investor sentiment seems to be shifting back to optimism, reflected in the stock’s recent upward trajectory.
What needs to unfold for Supermicro to shine in 2025?
For Supermicro to calm investors’ worries, delivering solid and audited financial results is crucial. If they achieve this, it might sway back many who currently find the stock too risky to touch.
The company has been granted an extension by Nasdaq to submit its financials by February 25. Should the new auditor validate the annual numbers, showing that margins are improving, it could catalyze a significant boost in investor confidence.
Until that assurance is delivered, the cloud of risk and uncertainty will linger over the stock. In its latest completed reports for the quarter ending June 30, Supermicro reported a 143% leap in sales to $5.3 billion, spurred by escalated demand for its IT infrastructure services, such as cloud and server solutions.
Additionally, net income surged to $352.7 million, marking an 82% increase, even though gross profit margins were a paltry 11.2%. Should Supermicro substantiate these figures with audited full-year results while maintaining robust growth, it might see substantial gains come 2025.
Is it wise to invest in Supermicro today?
The positive news of a newly appointed auditor and the favorable findings from the special board committee have spurred a fresh wave of buying. Despite these developments, the underlying risks persist. The financial statements, which are paramount, remain unreported.
Owning this stock has been a rollercoaster ride this year and could remain just as volatile into 2025. While there hasn’t been further negative press to drag it down, potential investors should approach Super Micro Computer with caution. A prudent strategy might be to adopt a wait-and-see stance with this stock, observing how the financial disclosures unfold.
