Super Micro Computer Shares Drop Again: What's Next for the Stock?

The bad news keeps coming for Supermicro.

Shares of Super Micro Computer (SMCI -3.77%) have experienced another fall following the company's recent update on its fiscal first-quarter results and ongoing audit and filing situation. Earlier this year, Supermicro enjoyed significant success, with its stock price quadrupling in the first three months of 2024. However, this latest decline has pushed its shares deep into negative territory for the year.

Let's examine Supermicro's recent challenges and what they mean for investors.

Revenue Misses Expectations

In a recent report to investors, Supermicro adjusted its fiscal Q1 sales forecast to between $5.9 billion and $6.0 billion, down from the previous estimate of $6 billion to $7 billion. While this is disappointing, it's important to note that last year the company recorded just $2.1 billion in revenue. Thus, even with the lowered forecast, the company's revenue is set to nearly triple year-over-year.

Moreover, Supermicro anticipates adjusted earnings per share (EPS) to fall between $0.75 and $0.76. This is a decline from the previous guidance of $0.67 to $0.83, although it still represents an increase from $0.34 a year ago after accounting for the company's earlier 10-for-1 stock split.

Gross margins, which were a significant issue last quarter as they decreased to 11.2% from 15.5% in the fiscal third quarter and 17% a year prior, are expected to reach 13.3%. This marks a sequential improvement, bringing margins closer to the more typical range of 15% to 17%. However, it's worth noting that this remains a low-margin sector compared to chip manufacturers like Nvidia and Broadcom, which boast margins around 75%.

Looking ahead to the second fiscal quarter, Supermicro projects revenue between $5.5 billion and $6.1 billion, with adjusted EPS expected between $0.56 and $0.65. This compares to the $3.66 billion in sales and $0.56 adjusted EPS recorded a year ago.

Concerns Over Audit and Compliance

On the auditing front, Supermicro announced that its Special Committee found no evidence of fraud within management. However, the company is implementing remedial measures to enhance its internal governance and oversight. Notably, Supermicro has not been able to determine the timeline for filing its 10-K annual report, originally due on August 29.

This delay puts the company's stock at risk of delisting from the Nasdaq. On September 17, the exchange notified Supermicro of its non-compliance, granting a 60-day window to file or propose steps to regain compliance. With the absence of an auditor following the resignation of Ernst and Young, the risk of delisting seems substantial.

The company has previously faced delisting in 2019 due to accounting issues but was relisted in 2020. If Supermicro's shares were to be delisted again, trading would shift to the over-the-counter (OTC) market, which could also lead to exclusion from the S&P 500, a category it recently joined.

Investor Considerations

Despite its clear potential, Supermicro is facing significant skepticism due to accounting queries stemming from NVIDIA's diversion of orders away from the company. Given its exposure to the booming AI infrastructure market, Supermicro’s future success hinges on resolving these issues promptly. If suppliers and customers start avoiding Supermicro, it could substantially impact the company's long-term growth prospects.

While some investors might see an opportunity in the current low stock price, it may be wise to remain cautious amid such uncertainty. There are likely better options to capitalize on the AI infrastructure expansion without the associated risks of Supermicro’s current situation.

Supermicro, Stock, Earnings