Super Micro tumbles as Wall Street is not impressed with Q1 results, audit issues

Super Micro Computer (NASDAQ:SMCI) issued preliminary first-results and guidance on Tuesday that left Wall Street expressing deep concern about the health of its company and issues related to its financial statements.

Shares tumbled 17% in premarket trading.

“We expect the lack of clarity to put the stock under pressure near term with the rising risk of SMCI not meeting Nasdaq’s listing requirements,” Barclays analyst George Wang wrote in a note to clients.

Super Micro tried to assuage investor concerns and said it is working on finding a new auditor to replace EY and that it intends to submit a plan to the Nasdaq to show it is in compliance with the exchange’s listing requirements. The company also addressed the situation related to its delayed 10-K, and said it has seen no evidence of fraud or misconduct, but that it remains difficult to say when the report will be filed.

However, Wang said the risk is “rising” that Super Micro ultimately is not in compliance and “a possible index removal could also continue to pressure the stock as the next S&P 500 rebalancing is in early December.”

No comfort

Seeking Alpha analyst Marc Gerstein said he is not comforted by the fact that the special committee found no evidence of fraud or misconduct. “The purpose of an auditor is to spare investors the burden of trusting only insiders,” Gerstein said via email. “Given the resignation of SMCI’s auditors, I absolutely cannot trust the word of the internal board committee.”

In addition, there could be fundamental concerns, as Wang posited that the weak first-quarter results and guidance for the next quarter could mean Super Micro is losing market share to companies like Dell (DELL) and HP Enterprise (HPE) amid concerns customer orders are being diverted and demand for Nvidia’s (NVDA) Hopper GPUs slows down with the launch of its Blackwell line of GPUs.

“Based on our supply chain work, we expect 5-10% market share for GB200 racks for SMCI, vs. Hopper server share of 15%,” Wang continued. “Asian [Original Design Manufacturers] talk of 3-4% GM for L10 system assembly; even assuming slightly higher GMs for L11 and L12 for SMCI, GB200 GM is likely around HSD at best for SMCI, which should be viewed as a disappointment.” Wang lowered his price target on Super Micro to $25 from $42 and kept his Equal Weight rating.

Super Micro said on its earnings call that Nvidia has not made any changes to how it allocates GPUs to its customers, despite some media reports suggesting so.

Susquehanna analyst Mehdi Hosseini also cut his price target on Super Micro (to $15 from $32.50) and said he is “negative” on the results and lowered his estimates based on what he heard. Hosseini also said the risk of a potential delisting is rising and may be similar to what happened in 2018, when the company was also unable to file its financials on time.

JPMorgan analyst Samik Chatterjee went a step further and downgraded Supermicro to Underweight from Neutral and slashed his price target to $23 from $50, as the level of uncertainty around the company’s fundamentals and the regulatory filing concerns are rising.