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Latest News 
December 6, 2024


WHERE WILL SUPER MICRO COMPUTER STOCK BE IN 2 YEARS?

Posted By: admin
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With shares trading up around 59% in the last 30 days, Super Micro Computer
(NASDAQ: SMCI) is showing signs of recovery as investors become more confident
that it can remain listed on the Nasdaq Composite stock exchange. However, given
all the turmoil this tech company has been dealing with over the past several
months, investors considering this stock are wondering: Is this the start of a
long-term recovery, or just a temporary respite on what appears to be a steep
spiral downward?

Let’s dig deeper into what the next two years could have in store for this
embattled company.

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Founded in 1993, Supermicro (as it is generally known) is an information
technology hardware specialist that focuses on manufacturing and selling
high-performance computer servers. Shares traded on a relatively stable basis
for most of the company’s time as a public entity. Then a sales catalyst
presented itself when the generative artificial intelligence (AI) industry
upgraded with the launch of OpenAI’s ChatGPT in late 2022.

Supermicro turns AI chips made by partners like Nvidia and Advanced Micro
Devices into ready-to-use computers and servers, giving it a middleman role in
this AI industry and allowing it to enjoy a robust growth rate.

Finalized financial data for Supermicro’s fiscal 2025 first quarter (which ended
Sept. 30, 2024) isn’t available because of filing delays while an audit is done.
However, an independent special committee appointed by the board of directors
released a preliminary report indicating that revenue is within the range of
$5.9 billion to $6 billion, representing an eyewatering 180% growth rate
compared to the prior-year period. For context, the hardware industry leader
Nvidia grew sales “only” 94% in its most recent quarter.

Despite its triple-digit growth rate, Supermicro stock currently trades for a
forward price-to-earnings (P/E) multiple of just 9.6, compared to the S&P 500
average estimate of 24 and Nvidia’s forward P/E of 32. It’s hard to pinpoint the
exact cause of Supermicro’s deeply discounted stock. However, the most likely
reason could be a lack of faith in the company’s leadership and its accounting
team.

Supermicro has dealt with questionable accounting issues before. The stock was
delisted from the Nasdaq for a time back in 2018 for failing to file required
financial reports. It also received a $17.5 million fine from the Securities and
Exchange Commission (SEC) back in 2000 related to improperly recognized revenue.

Story Continues

In March 2024, Hindenburg Research — known for publishing stock analyses that
aid its short-selling operations — accused Supermicro of accounting manipulation
and sanctions evasion. Soon after the Hindenburg report came out, Supermicro
delayed filing its required 10-K, and its former auditor, Ernst & Young,
resigned, citing an unwillingness to be associated with the company’s financial
statements.

After this slew of accounting-related incidents, the likelihood grew that
Supermicro would fail to find an auditor and end up being delisted from the
Nasdaq. Such a scenario would hurt its valuation by making shares less liquid
and attractive to mainstream financial institutions. However, the company
quickly found another auditor (BDO USA) and submitted a compliance plan to
remain listed on the exchange.


Image source: Getty Images.

On Dec. 2, Supermicro’s share price soared 20% after the independent special
committee (appointed by the board) reiterated its claim that it found “no
evidence of misconduct” from the company’s Board of Directors or management.
This is a step in the right direction. However, investors should remember that
the company is reportedly still under a Department of Justice (DOJ) probe, so it
isn’t completely out of the woods yet.

If it hopes to improve the share price over the next two years, Supermicro must
resolve these allegations and regain the market’s trust. If it does, it will
likely improve upon its absurdly low valuation and unlock additional shareholder
value. This may also be key to maintaining some vital business relationships,
because suppliers like Nvidia may be less willing to do business with a partner
that is having legal and regulatory issues.

I am optimistic that Supermicro’s stock price will recover from here because I
think a lot of the uncertainty is already priced in. However, the stock price is
likely to be somewhat volatile for a while. New investors may want to wait for
an update from the DOJ, along with possible leadership changes, before opening
any position in this stock.

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*Stock Advisor returns as of December 2, 2024

Will Ebiefung has positions in Super Micro Computer. The Motley Fool has
positions in and recommends Advanced Micro Devices and Nvidia. The Motley Fool
has a disclosure policy.

Where Will Super Micro Computer Stock Be in 2 Years? was originally published by
The Motley Fool

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