SMCI rallies 32% after hiring auditor, announces filing plan
2min read Super Micro Computer, Inc. (SMCI) recently experienced a sharp rally after announcing the appointment of BDO USA, P.C. as its new auditor and submitting a compliance plan to Nasdaq. The news alleviated immediate concerns about the company’s potential delisting from Nasdaq due to delayed financial filings, an issue that has caused significant volatility in the stock. SMCI shares surged by 32% on the announcement, with investors reacting positively to the steps taken to address the company’s financial reporting issues. The stock, which has a high short interest of around 17%, saw additional volatility due to short-sellers covering their positions amid the news.
The backdrop of SMCI’s recent struggles includes a short-seller report from Hindenburg Research in August, which alleged accounting irregularities and raised concerns about undisclosed related-party transactions and potential export control violations. This report, combined with the resignation of its former auditor Ernst & Young (EY), placed the company under heightened scrutiny. EY’s departure was especially concerning, as the firm stated it could no longer rely on representations from SMCI’s management and audit committee, adding to investor anxiety about the company’s financial practices.
Following EY’s resignation, SMCI delayed filing its 10-K for the fiscal year ended June 30, raising doubts about its ability to meet Nasdaq’s listing requirements. In September, Nasdaq notified SMCI that it was out of compliance and provided a 60-day window to submit a compliance plan or risk delisting. The company’s submission of the plan, along with BDO’s appointment, now provides a clear path forward, with Nasdaq expected to review the plan in the coming weeks to determine if SMCI’s timeline for becoming current with its filings is satisfactory.
The appointment of BDO, one of the world’s largest and most respected auditing firms, is seen as a positive development that could help restore credibility to SMCI’s financial reporting. CEO Charles Liang emphasized that engaging BDO is a critical step towards bringing the company’s financial statements up-to-date, reflecting a commitment to transparency and regulatory compliance. BDO’s involvement may enable SMCI to proceed with filing its delayed reports, a move essential for avoiding future listing compliance issues.
This news has not entirely eliminated risks for SMCI, as the company still faces a potential Department of Justice (DoJ) investigation. While details remain sparse, it’s believed that the investigation may relate to financial reporting issues, although some speculate that it could involve export violations regarding advanced AI processors to China. This uncertainty, combined with SMCI’s recent financial and regulatory challenges, suggests that the stock may remain volatile as more information unfolds.
SMCI’s struggles and potential delisting risks have created an opening for competitors, particularly as SMCI is known for its AI-related server systems. Companies like Nvidia, which recently collaborated with SMCI on its Blackwell GPU-based AI server systems, and major players like Dell and HPE may capitalize on any disruption SMCI faces.
Despite these headwinds, SMCI’s recent announcements have helped stabilize investor sentiment temporarily, evidenced by the stock’s strong post-announcement performance. If SMCI can successfully meet Nasdaq’s compliance requirements and resolve any DoJ inquiries, it could potentially reclaim some of the investor confidence lost over the past few months. However, the high short interest and ongoing investigations mean that only risk-tolerant investors may find the stock appealing at this juncture.
In summary, SMCI’s recent rally reflects cautious optimism about its efforts to regain regulatory compliance and address financial reporting concerns. With BDO now overseeing its audit process and a compliance plan submitted to Nasdaq, SMCI appears to be on a clearer path forward. However, the looming DoJ investigation and the potential for future delisting risks suggest that SMCI’s recovery is far from guaranteed, and the coming months will be critical in determining the stock’s longer-term outlook.