Upcoming Week May holding Significant Potential for Super Micro Computer Shares. Two Crucial Elements Investors Should Monitor Closely.
Much like a frog in a simmering pot, things have been getting increasingly uncomfortable for Super Micro Computer (SMCI) as time passes by.
The company's financial troubles started in late August, following a short report from Hindenburg Research. The very next day, Super Micro Computer delayed filing its 10-K report. A month later, the Department of Justice began investigating the company due to accounting concerns, as reported by The Wall Street Journal. Subsequently, in October, Ernst & Young dropped out as their auditor, marking a significant red flag.
Since then, the company released preliminary fiscal 2025 first-quarter results, but they provided no clarity on the status of the 10-K filing or other challenges. Consequently, the stock plummeted by 65% post-Hindenburg's report.
Investors might not have to wait long to find out Super Micro Computer's next move, as the issues may come to a head next week. Here are two primary reasons why.
1. Approaching Nasdaq deadline
Just days before its deadline, Super Micro Computer received a notice from Nasdaq for failing to adhere to SEC reporting rules - which require timely filing of reports. The company is obliged to file its 10-K statement or submit a regaining-compliance plan to Nasdaq within 60 days. That deadline falls on November 16, leaving room for delisting procedures to begin as soon as Monday, November 18. If this happens, the stock would trade OTC, losing its position in the S&P 500 and various ETFs that possess it.
As of now, it remains unclear how Super Micro Computer plans to deal with the delisting notice, given its lack of progress in filing the 10-K statement, and its absence of a new auditor. In the company's preliminary first-quarter earnings report on November 5, management expressed intentions to regain Nasdaq compliance as soon as possible. However, absent a 10-K filing in the following days, investors can expect the company to present a plan to regain compliance.
On November 5, Super Micro Computer revealed an update from its recently formed Independent Special Committee. The Audit Committee remained independent of any CEO Charles Liang influence, and found no evidence of fraud or misconduct by the management or board of directors.
The Independent Special Committee also proposed remedial measures and suggested they would present the full report by the end of the week.
2. The Nvidia connection
Super Micro Computer is grappling with multiple pressures, including potential fines from SEC and DOJ, as well as financial revisions that would further erode stock value. However, the biggest risk to their business seems to be the deterioration of their close relationship with Nvidia (NVDA) – its primary business partner.
Nvidia is reportedly distancing itself from Super Micro Computer. Some sources claim that Nvidia is shifting orders from Super Micro Computer to other server companies, due to fear of reputation damage and potential operational difficulties. Nvidia has not confirmed these reports, but if they're accurate, this move is most likely due to concerns over Super Micro Computer's integrity. As Nvidia prepares to launch its newest Blackwell chips, this choice could prove beneficial.
Investors can expect more insight when Nvidia reports its fiscal third-quarter earnings on November 20. This call could shed light on the Super Micro Computer situation.
In conclusion
Super Micro Computer is racing against time to overcome various hurdles, and its stock appears to be at a crucial crossroads. Investors may find out as soon as next week the future viability of the company.
If it fails to submit a regaining-compliance plan to Nasdaq and faces unfavorable news from Nvidia's earnings report, the stock could enter a downward spiral that could prove challenging to reverse.
That being said, it's also possible the company may recover, but the current trends and realities seem to indicate otherwise. At this stage, the stock appears overly risky, but it's worth keeping an eye on Super Micro Computer's progress in the coming weeks. If it succeeds in regaining Nasdaq compliance, reassuring investors with its special committee findings, and getting through Nvidia's earnings report without negative news, there might be some breathing room for the stock.
Even so, it won't be easy for Super Micro Computer to clear its record and regain investor trust.
- Given the approaching Nasdaq deadline, Super Micro Computer needs to either file its 10-K statement or submit a regaining-compliance plan to avoid delisting, which could significantly impact its financial situation and investment appeal.
- if Nvidia, Super Micro Computer's primary business partner, continues to distance itself due to concerns over the company's integrity, it could lead to a decline in orders and further financial strain, making investing in Super Micro Computer a risky proposition.
