Super Micro Computer (NASDAQ:SMCI), once one of the market’s biggest winners riding the AI hype wave, has been caught up in so much drama lately that it’s hard to keep track. In the past week alone, the stock has nearly halved in value and now sits 78% below its peak from earlier this year.
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The recent meltdown follows auditor Ernst & Young’s resignation, shortly after SMCI announced a delay in filing its annual 10-K report. To add to the uncertainty, reports suggest the company is also under investigation by the Department of Justice.
This all makes today’s fiscal first-quarter results (due after the close) take a backseat to a more pertinent question from investors: what the **** is going on here?
More specifically, says Wedbush’s Matt Bryson, an analyst ranked in the top 2% of Wall Street stock experts, investors would like to know if SMCI can stop the stock from being delisted.
As of September 17, the company was given 60 days to submit a viable plan to the NASDAQ to regain compliance by filing its fiscal 2024 10-K. If NASDAQ approves SMCI’s plan, it might grant it up to 180 days from the original August 29 deadline to submit the 10-K. However, given the company is now sans auditor, Bryson thinks it “arguably appears to be an uphill battle for SMCI to remain listed at this point.”
Another pertinent question that needs answering is whether there’s a big problem with financials and management’s behavior. The company had accounting issues before, but these were minor, involving only small revenue shifts between quarters, with the primary issue in 2018 being the delisting. SMCI has said it does not anticipate it will need to restate its fiscal 2024 quarterly reports, suggesting “there are no problems with financials.” However, EY’s resignation and the WSJ article hinting at a DOJ investigation suggest to Bryson that “investors need to account for the risk a larger problem might exist.”
Lastly, investors would like to know if the company can keep its 2024 sales forecast as is and given all the news flow, how will that affect the business? Before the latest issues, there were indications that demand for liquid cooling wasn’t as strong as expected, while Bryson notes “mixed feedback” about whether the concerns about the late filing and the reported DOJ investigation are affecting customers’ decisions.
“But net,” the 5-star analyst summed up, “given the above, we are more cautious around SMCI’s ability to meet/ exceed FQ1 expectations or guide to consensus for FQ2.”
Bottom line, Bryson gives a Neutral rating on SMCI shares, while lowering his price target from $62 to $32. Still, there’s a potential upside of ~21% from current levels. (To watch Bryson’s track record, click here)
Amongst his colleagues, 9 other analysts join Bryson on the sidelines while 3 additional Buys can’t alter a Hold consensus rating. Meanwhile, some analysts have yet to update their SMCI models and as such, the average price target remains highly optimistic; at $61.76, the figure makes room for one-year returns of ~132%. (See SMCI stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
