Nvidia remains AI king as Super Micro tagged along for wild ride

Super Micro Computer (NASDAQ:SMCI) continued to tumble on Thursday, effectively erasing year-to-date gains, in what has been a tumultuous ride for the company’s share value after it hitched its wagon to the artificial intelligence boon.

Super Micro plummeted 14% by noon trading on Thursday. Shares peaked this year at $118.81 in mid-March. After starting 2024 at $28.43, it reached as low as $27.43 this morning.

A litany of negative news plagued the company during the second half of 2024. It was exacerbated by the untimely resignation of Super Micro’s auditing firm Ernst & Young LLP just weeks ahead of filing deadlines with NASDAQ and the SEC.

“SMCI has been in the hot seat since reporting FY24 results,” said Seeking Alpha analyst Michael Del Monte. “Concerns were raised on the earnings call by one of the analysts as to the viability of SMCI’s direct liquid cooling systems and whether they were as durable as suggested. Mr. Liang dodged the question with no direct answer as it relates to DLC leakage or other potential technical issues.”

“Following the close of the fiscal year came the Hindenburg letter, the delayed 10-k, and finally the resignation of EY from the audit committee,” he added. “I’m not here to call out fraud, but coincidences do not exist, only the illusion of coincidences.”

Despite the rapid decline in share value, analysts do not recommend buying the drop at this point.

“I don’t recommend any bottom-fishing attempt at this point despite the attractive valuation caused by the price correction,” said Lucas Ma of Envision Research, Investing Group Leader for Envision Early Retirement. “In addition to the resignation of the auditor, there are other substantial uncertainties surrounding the stock already, such as the DOJ investigation and its profit margin uncertainties.”

“With these developments, investors need to interpret the FWD P/E with a grain of salt and consider the possibility of a restatement of its financials,” Ma added. “Given the upcoming Q3 earnings report and the ongoing extreme volatility implied, existing investors might consider the use of put options to hedge their existing position.”

Super Micro remains tied to leaders in the AI industry, such as Nvidia (NASDAQ:NVDA), whom the company has partnered with to build modern marvels such as generative AI SuperClusters and the Omniverse.

Nvidia shares slid 4% by noon trading, but it hasn’t been affected so far by the turmoil at Super Micro. Super Micro also partners with Advanced Micro Devices (NASDAQ:AMD) and Intel (NASDAQ:INTC) to help integrate their chips into custom server solutions. These stocks were down 1.7% and 2.5%, respectively.