Super Micro suffers suspension following auditor news, but AI trade rolls on

The bad news around Super Micro Computer (NASDAQ:SMCI) continued today with the unexpected resignation of its auditing firm, Ernst & Young LLP.

Super Micro shares plunged more than 30% by noon trading on Wednesday. They are now down more than 60% over the past three months.

Rival Dell Technologies (NYSE:DELL) saw it shares soar 8% by noon trading as it could capture a larger share of the artificial intelligence server market. Rival Hewlett Packard Enterprise (NYSE:HPE) was up 3%. Nvidia (NASDAQ:NVDA), which is a partner with Super Micro, had only inched down 1%.

The analysts at Needham suspended coverage on Super Micro today after the investment firm had previously given the company a Buy rating.

“Not only does Ernst and Young’s resignation raise considerable questions about the validity of Supermicro’s current and past financial statements, but it also raises significant questions about Supermicro’s corporate governance and management’s commitment to integrity and ethical values,” Needham noted.

Needham also sees a significant risk of Super Micro defaulting on the company’s Term Loan Agreement with Bank of America.

“Under these circumstances, we are forced to Suspend our Rating on Supermicro shares,” the bank added. “Our previous financial model should no longer be relied upon.”

Wells Fargo now believes Super Micro will likely be unable to file its fiscal 2024 statements in time.

“We see the resignation of SMCI’s independent auditor EY as materially decreasing the odds that SMCI will be able to file its F2024 financial statements on time as it moves to hire a new public accounting firm,” Wells Fargo analysts said in a note.

“SMCI currently has a listing non-compliance letter from NASDAQ dated Sept. 17,” Mizuho analysts said in a note. “We believe this notice gives SMCI 60 days (Nov. 16) to present a plan to return to compliance with NASDAQ requirements or face delisting (the second instance in the last 5 years). Following the EY resignation, we believe it increases the risk for SMCI of not filing the 10-K or getting an auditor to file 10-K plan, while increasing delisting risks.”

Super Micro announced today it will release a business update next week on the first quarter of fiscal 2025, but not a full financial report. The update will be webcast at 5 p.m. ET on Tuesday, November 5.

The company was already reeling from the effects of a short report issued by Hindenburg Research in late August.