Super Micro’s accounting concerns could be bad for the stock, just ask MicroStrategy

Shares of Super Micro Computer (NASDAQ:SMCI) two days ago turned negative for the year, a development that would have seemed unthinkable in March when the stock was riding high on the back of a more than 300% advance.

The maker of artificial intelligence (AI) servers has been under a major cloud this week after the resignation of its auditor Ernst & Young LLP (EY).

The stock was -47% in its last three trading sessions, and now finds itself -8.4% YTD. Back on March 13, when it closed at a record level of $118.81/share, it was up +317.9% at that point.

Worries over the information technology hardware manufacturer’s financial statements emerged in late August, when famed short-seller Hindenburg Research said it had found “red flags” and “evidence of undisclosed related party transactions” after a three-month investigation.

A day after the Hindenburg report, Super Micro (SMCI) delayed its annual filing for fiscal year 2024. Later in September, top boss Charles Liang wrote a letter to the company’s customers and partners saying neither the short report nor the delay in the annual filing would impact them.

SMCI on Wednesday disclosed that EY had sent a letter of resignation on October 24. EY had previously in late July expressed concerns over matters related to governance and transparency.

Where SMCI stock goes from here, only time will tell. But accounting issues have not been good news for companies in the past. Coincidently, one of those historic examples was also in the spotlight recently – MicroStrategy (NASDAQ:MSTR).

Tysons Corner, Va.-based MicroStrategy (MSTR) was incorporated in Delaware in November 1989. Today, it is known as one of the world’s largest holders of bitcoin (BTC-USD). But back in the early years, its business primarily consisted of providing software consulting services. During 1994 and 1995, it also branched into the development and sale of data-mining and decision support software.

MicroStrategy (MSTR) in December 2000 was found guilty by the U.S. Securities and Exchange Commission (SEC) of “materially” overstating its revenues and earnings. The Commission found that the company’s financial reports from June 1998 through March 2000 showed a positive net income when in fact it should have been losses.

The SEC settlement took an immense toll on MSTR stock. In March 2000, the stock closed at a record high of $313/share. Later, in December, following the SEC’s announcement, MSTR stock ended the year at $9.50, a -97% plummet.

It has taken over 24 years, but finally this week, MicroStrategy (MSTR) stock has returned to its March 2000 record levels. On Tuesday, it hit a 52-week intraday high of $267.89.

Of course, to say that Super Micro (SMCI) stock will take over two decades to return to its record levels is mere speculation. However, MicroStrategy’s (MSTR) saga is one memorable example of how accounting problems can derail a stock’s momentum.

More on Super Micro Computer and MicroStrategy

• Super Micro Computer: Many Questions Investors Shouldn’t Even Bother Asking
• Super Micro Computer: EY Gives Up, But Should Investors?
• Super Micro’s cautionary tale: From S&P inclusion to losing $54B in market cap
• MicroStrategy Is Running Towards Its All-Time High
• MicroStrategy Is Tapped Out, Short Shares And Buy Bitcoin Instead