- Argus and CJS Securities downgraded SMCI stock.
- SMCI has a history of accounting irregularities that also involved Yih-Shyan “Wally” Liaw, the company’s co-founder, who was accused of illegally diverting Nvidia chips to China.
- Stocktwits sentiment has remained ‘extremely bullish’ since the charges were made public; many traders believe that, because SMCI is not directly accused of wrongdoing, its stock will eventually recover its losses.
The indictment of Super Micro Computer staff accused of redirecting billions of dollars worth of Nvidia chips to China in violation of U.S. export rules has brought the spotlight back on the server company’s past missteps and debacles. Retail traders, however, are still expecting things to blow over quickly and lead to a rebound in the stock.
The U.S. has charged three workers associated with Super Micro, including co-founder Yih-Shyan “Wally” Liaw, for their role in a scheme that enabled the smuggling of $2.5 billion worth of equipment. A sales manager and a contractor were also charged.
Even though the company argued that the indictment does not name Super Micro and said that Liaw had stepped down from the board, SMCI’s stock shed more than a third of its value on Friday. It dropped a further 5% in Sunday’s overnight trading.
SMCI Analysts Turn Cautious
On Saturday, Argus downgraded Super Micro to ‘Hold’ from ‘Buy,’ saying that the charges “reawaken echoes" of past missteps by Super Micro on revenue delivery, margin shortfalls, and near de-listing on the Nasdaq. It contended that the SMCI stock would not trade on fundamentals in the intermediate term.
Previously, CJS Securities double-downgraded the Super Micro shares to ‘Underperform’ from ‘Outperform,’ while Bernstein had said the allegation involving the staff "raises serious credibility issues that could impact business."
There is higher regulatory risk, said Raymond James, which maintained its ‘Outperform’ rating. The incident adds to existing governance and reporting concerns, and is a "bad look," as it could trigger increased regulatory scrutiny, the research firm said.
SMCI Past Missteps
To be sure, Liaw, who co-founded Super Micro in 1993, had resigned from Super Micro once before, amid an accounting scandal.
He stepped down in 2018 alongside the company’s finance chief following an internal audit committee probe that led to a restatement of the financials. In 2020, Super Micro agreed to pay $17.5 million to resolve Securities and Exchange Commission allegations of widespread accounting violations.
Liaw returned to Super Micro as a consultant in 2021, then as a senior vice president in 2022, and was re-appointed as a board member in late 2023.
Separately, two years ago, the company’s auditors, Ernst & Young, had resigned abruptly. EY said in its letter that it could no longer rely on representations from Super Micro’s management or audit committee, claims that again raise suspicion about the company. Super Micro lagged in filing its financial reports for a period before it brought in BDO as its auditor.
Retail Investors Expect Rebound
Super Micro remained one of the most-discussed stocks among retail traders throughout the weekend. On Stocktwits, the retail sentiment for SMCI has remained ‘extremely bullish,’ unchanged since Friday; chatter for the ticker has surged by over 1,500% in the past seven days.
Several users argued that the company’s strong fundamentals and the fact that it was not directly named in the indictment would ultimately push the stock to rebound.
“$SMCI panic selling, low volume overnight trading will come back and haunt those who sold at open, I’ve seen this before,” said one user.
Another user suggested that panic selling had ended and the stock would rebound on Monday, with investors looking at the move through the week before making larger bets.
“All the institutions that wanted to sell have already done so…at a much higher price… That doesn’t mean we don’t go down tomorrow but that would be for a different set of reasons- mainly targeting stop losses. Dip at open with a recovery to green by the end of the day wouldn’t be unheard of,” said this person. “That said, I believe everyone will be waiting until the end of the week before executing hard in either direction.”
Super Micro shares are now down 30% year-to-date.
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