The US Department of Justice is reported to be investigating Super Micro Computer, causing its stock price to plummet by 18% and triggering several trading halts, while Nvidia surged over 3% before turning lower

On Thursday, September 26th, before the midday trading session in the US stock market, according to an exclusive report by The Wall Street Journal, the US Department of Justice is investigating "AI darling" and server manufacturer Super Micro Computer after Hindenburg Research released a short report. The investigation is in its preliminary stages.

This news caused Super Micro Computer to plummet in the short term, quickly reversing its 5.7% morning gain to a decline, and it was temporarily halted multiple times due to excessive volatility. The Philadelphia Semiconductor Index's gain narrowed from an initial 4.4% to less than 1%.

After resuming trading, Super Micro Computer's stock price saw its deepest decline expand to 18.6%, marking the largest drop in nearly a month and approaching the eight-month low set on September 6th. Popular chip stocks also plunged, with NVIDIA initially rising by 3.4% but later turning negative and dropping by 1%.

Chip stocks rose across the board in the morning session, mainly boosted by Micron Technology's strong AI demand shown in its Wednesday post-market earnings report.

According to sources, a prosecutor from the US Attorney's Office in San Francisco recently contacted some individuals seeking information from a former employee who accused Super Micro Computer and its CEO of accounting irregularities in April this year.

At the end of August, Super Micro Computer applied to the US Securities and Exchange Commission (SEC) to delay the submission of its 10-K annual report for the 2024 fiscal year, stating that all parties are working hard to complete the assessment. A few days before this application, Hindenburg Research released a short report on the company, alleging a series of issues such as "accounting manipulation, undisclosed related-party transactions, violations of export controls, and customer loss."

Regarding the short-term drop in NVIDIA's stock price, some social media users mentioned that NVIDIA's third-largest customer, Super Micro Computer, is under a Department of Justice investigation for "accounting irregularities," making it hard not to associate negative news with NVIDIA. "If true, this would confirm that NVIDIA's supplier financing/reverse financing is collapsing." The short report by Xingdengbao Research also mentioned the allegations made by former Super Micro Computer employee Bob Luong in the "whistleblower lawsuit". Bob Luong mentioned that Super Micro Computer dismissed several employees related to past accounting violations and then rehired them. Bob Luong previously served as the General Manager providing guidance to the global service team and was dismissed in April last year.

He also accused Super Micro Computer of inappropriately recognizing revenue from the fiscal year 2020 to 2022 in certain situations. For example, in some cases, the company recorded unfinished sales revenue, and another method of prematurely recognizing revenue was "shipping to certain customers and charging for incomplete equipment not yet ready for sale".

Furthermore, the short report by Xingdengbao also questioned the related party transactions between Super Micro Computer and other companies operated by CEO Charles Liang's family, which violated the US sanctions against Russia following the Russia-Ukraine conflict.

On September 3rd, the CEO of Super Micro Computer wrote to customers stating that the short report "contains false or inaccurate statements about our company" and is not expected to make any significant changes to the previously released financial performance for the fiscal year 2024.

It is reported that Super Micro Computer has applied to the court to temporarily suspend Bob Luong's lawsuit and has submitted his claim for arbitration. In 2020, Super Micro Computer paid $17.5 million to settle SEC's allegations of widespread accounting violations. The company's CEO also reached a settlement with the SEC, returning $2.1 million in stock sales profits to the company. However, neither the company nor the CEO was charged with misconduct.

It is worth noting that Super Micro Computer announced in early August that it will implement a 10-for-1 stock split on October 1st, mainly due to the rapid rise in the company's stock price in a short period of time. The stock split will no longer be "too expensive" after the split, which is beneficial for stimulating new buying activities. From early 2023 to March this year, the stock peaked at a 14-fold increase, with the company's market value reaching $66 billion.

The US investment research institution The Motley Fool pointed out that Super Micro Computer has dropped nearly 70% since reaching its peak in March, and the continued selling may be due to mixed financial reports and the Xingdengbao short report:

"Significant capital expenditures have significantly dragged down the company's gross margin, causing concerns about its liquidity and long-term profit potential. However, management describes the deterioration in profit margins as short-term issues related to new product launches and supply chain problems."