On Thursday, Argus lowered its intermediate-term rating on shares of Super Micro Computer (NASDAQ:SMCI) from Buy to Hold, while maintaining a long-term Buy rating. The adjustment came after a significant drop in the company's share price, which fell 33% on Wednesday, October 30, 2024. This decline was a reaction to an 8K filing that revealed the loss of a key accounting partner and a delay in communicating this loss to investors.
Super Micro Computer experienced a notable setback when Ernst & Young LLP (EY) resigned as the company’s registered public accounting firm on October 24, 2024. The company, however, did not make this information public until October 30, 2024. Prior to the resignation, in July 2024, EY had expressed concerns regarding governance, transparency, and the completeness of communications at Super Micro.
The company has faced scrutiny since August 2024, following accusations from Hindenburg, a prominent short-seller firm. Hindenburg accused Super Micro of accounting irregularities, failure to comply with export controls, and questionable transactions involving related parties. These allegations have led to an investigation by the U.S. Department of Justice into the company's practices.
Despite these challenges, Super Micro Computer has reported sales and earnings growth surpassing the technology industry average in recent years. The company attributes this success to its role as a global leader in AI-accelerated computing platforms, with high demand for its advanced applications and optimized rack-scale solutions.
The loss of its auditing firm and the ongoing Department of Justice investigation have shifted the focus away from the company's fundamentals. Argus will consider reinstating Super Micro Computer to the Buy list once the company appoints a new accounting firm, catches up on its filings, and resolves the issues with the Department of Justice. Until then, the firm believes that a Hold rating is the prudent course of action.
InvestingPro Insights
In light of the recent developments at Super Micro Computer (NASDAQ:SMCI), InvestingPro data provides additional context to the company's current situation. Despite the recent setbacks, SMCI's revenue growth remains impressive, with a 109.77% increase over the last twelve months. This aligns with the article's mention of the company's sales growth surpassing industry averages.
However, the stock has taken a significant hit, with InvestingPro data showing a 28.47% decline in the past week and a 52.87% drop over the last three months. This reflects the market's reaction to the accounting firm resignation and ongoing investigations mentioned in the article.
InvestingPro Tips highlight that analysts anticipate sales growth in the current year, which could be a positive sign amidst the current challenges. Moreover, the stock's RSI suggests it may be in oversold territory, potentially indicating a buying opportunity for risk-tolerant investors.
It is worth noting that InvestingPro offers 18 additional tips for SMCI, providing a more comprehensive analysis for investors navigating this complex situation.
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