AI "Big Monster Stock" Super Micro Computer plummeted by 26% after Muddy Waters released a short report, causing the company to delay the release of its financial report

Super Micro Computer stated on Wednesday that the company expects not to file its annual report for the fiscal year ending June 30, 2024 with the U.S. Securities and Exchange Commission (SEC) on time, and anticipates submitting a Form 12b-25 for the delayed filing of the annual report by August 30, 2024.

According to media reports, the company mentioned that additional time is needed by management to complete the assessment of the design and effectiveness of internal controls over financial reporting as of June 30, 2024. Super Micro Computer has not provided updates on its financial performance for the fiscal year and quarter ending June 30, 2024, which was previously announced in a press release on August 6, 2024.

The stock of Super Micro Computer fell by about 9% in pre-market trading and dropped by 19% within the first ten minutes of trading on Wednesday, with the morning decline exceeding 26%, marking the largest single-day drop since March 16, 2020. However, despite this, the stock still rose by 58%.

Collapse Leads to Decline in AI Stocks, with a History of Precedents

Nvidia is set to release its highly anticipated earnings report after the market closes on Wednesday, with investors generally expecting its performance to continue its strong momentum. Super Micro Computer has close business ties with Nvidia, allowing the company to capitalize on the surge in demand for AI servers. Due to the close connection between Super Micro Computer and AI stocks, the sharp drop of Super Micro on Friday also led to a decline in various AI and chip concept stocks, with Nvidia falling by up to 4.4%, Arm by 5.69%, AMD by 2.81%, and Intel by 2.17%.

In fact, back in April this year, Super Micro Computer caused a significant drop in its stock price by breaking the tradition of announcing earnings, leading to a collapse in AI stocks closely related to it, including Nvidia.

An article by Wall Street News earlier reported that on April 19, Super Micro Computer announced in a brief press release that it would disclose its third-quarter earnings on April 30. However, the company broke the tradition of providing preliminary earnings, causing investors to worry and aggressively sell off the stock, resulting in a 23% plunge on that day. At that time, the market widely believed that Super Micro did not provide a positive pre-announcement, which was seen as negative.

The significant drop of Super Micro at that time also dragged down various technology stocks, including Nvidia. Chip stocks and AI concept stocks were hit hard, experiencing a sharp decline on Friday. These technology companies did not release any news that could have caused a plunge in their stock prices.

Nvidia plummeted by 10% that day, the Nvidia double long ETF dropped by 20%, "Nvidia concept stock" SoundHound fell by over 7%, Arm dropped by nearly 17%, AMD fell by over 5%, Meta dropped by over 4%, Intel dropped by 2.4%, Microsoft, Apple fell by over 1.2% Also in August last year, Super Micro plummeted more than 23% in a single day, dragging down NVIDIA by nearly 5%.

Targeted by a Well-Known Short-Selling Institution the Previous Day

Analysis suggests that the timing of these events is quite delicate. Just the day before, the well-known short-selling institution Hindenburg Research announced its short position on Super Micro Computer stock, accusing the company of accounting irregularities, undisclosed related party transactions, sanctions, and export control failures. It is currently unclear if these two events are related. When asked by the media about the accusations made by Hindenburg, Super Micro declined to comment beyond its statement on Wednesday.

An article by Wall Street News previously pointed out that Super Micro has certain accounting irregularities. In 2018, Super Micro was temporarily delisted from Nasdaq for failing to submit necessary financial reports. Subsequently, the U.S. Securities and Exchange Commission (SEC) accused the company of "widespread accounting misconduct related to improper revenue recognition exceeding $200 million and understating expenses," leading to inflated sales, revenue, and profit margins. Hindenburg noted that less than three months after reaching a $17.5 million settlement with the SEC, Super Micro began rehiring executives involved in the previous scandal.

Hindenburg's report further claimed that shortly after settling with the SEC, Super Micro resumed practices such as "improper revenue recognition," "recognizing incomplete sales," and "circumventing internal accounting controls." The report implied that sales quota pressure led to problematic behaviors such as "partial shipments" and shipping defective products. Former employees reported that the internal culture of the company has not improved since the SEC charges.

Transactions with related parties by Super Micro have also sparked controversy. The report stated that the relationships between Super Micro and disclosed and undisclosed related parties involved suspicious transactions. Disclosed related party suppliers Ablecom and Compuware, companies controlled by CEO Liang Renxun's brothers and partially owned by Liang Renxun himself, received $983 million from Super Micro over the past three years. These entities provide components to Super Micro, which are then sold back, raising concerns about circular transactions and accounting integrity.

The report also reviewed Super Micro's recent investments and contracts. In February 2024, Super Micro made an undisclosed investment in the tech startup Lambda Labs and signed a $600 million California data center leasing contract, subleasing space to Lambda. In addition, undisclosed investments and transactions by Super Micro with other companies, including Leadtek and a Turkish shell company, have also raised red flags.

Furthermore, concerns about Super Micro's compliance with U.S. export restrictions are mounting. Despite the company claiming to have stopped selling products to Russia after the Russia-Ukraine conflict in February 2022, data shows a significant increase in the quantity of high-tech components exported to Russia by the company, while many companies handling Super Micro products are now subject to U.S. sanctions In addition to these issues, the report also points out that Super Micro Computer faces challenges in maintaining key partnerships. NVIDIA, as a major chip supplier, publicly supported Super Micro's competitor Dell in May 2024. CoreWeave and Tesla, once important customers of Super Micro, have shifted their business to Dell, further impacting Super Micro's market position.

"In conclusion, we believe that Super Micro is a repeat offender. It has benefited greatly as a pioneer, but still faces significant accounting, governance, and compliance issues, and provides inferior products and services, now being eroded by more reliable competitors."