Super Micro Gets Body-Bagged After WSJ Airs It's Dirty Laundry... (Shares Crater -12%)

Well friends, it looks like Super Micro Computers got absolutely body bagged yesterday, and it has the Wall Street Journal to thank for that. ICYMI, the Journal dropped a massive bombshell on Thursday, reporting that the U.S. Department of Justice has opened an investigation into the AI server maker. And in true market fashion, Super Micro's stock plummeted -12%, faster than Elon Musk deleted his friggin Biden/Harris tweet. 

(Source: Giphy) 

In short, while the DOJ probe caused quite a stir, it’s not exactly out of left field. As most of you already know, this lawsuit comes right after high-profile short seller Hindenburg Research unleashed a scathing report last month, accusing Super Micro of everything from sketchy accounting practices to potentially illegal shipments to Russia. 

(Source: CNBC) 

Hindenburg, who has a short position in the company (obviously), pointed to "glaring accounting red flags" and undisclosed related-party transactions like it was Mr. Wonderful calling out a contestant on Shark Tank for inflating their numbers.

What’s interesting here, is that before this mess, Super Micro was riding high, thanks to the AI boom. The company, which supplies servers powered by Nvidia chips (because what AI company isn’t powered by Nvidia these days?), saw its stock rip over 350% in the first half of 2024. 

Why? Well, because the generative AI craze had investors treating Super Micro like it was the next Amazon. But like all good things in tech, the party came to a screeching halt. Since Hindenburg’s allegations surfaced, Super Micro's shares have been in freefall, giving up a fat chunk of those gains (40% YTD gains at the time of this writing). 

So with that said, what else is the DOJ really digging into? Turns out, a lot of this heat is coming from a former Super Micro employee, Bob Luong, who filed a whistleblower lawsuit earlier this year. According to our clutch “people familiar with the matter”, the lawsuit claims Super Micro has been playing fast and loose with revenue recognition. Allegedly, the company booked sales early, shipped incomplete products to customers, and used a separate spreadsheet to manage revenue in a way that screams Enron. 

(Source: Investopedia) 

Luong, who was fired back in February (totally unrelated, we’re sure), is now seeking damages under the False Claims Act. Super Micro, meanwhile, is trying to push this whole thing into arbitration and keep it out of the public eye. But until then, the DOJ is sniffing around and asking questions, which never bodes well for a company trying to keep its stock price from tanking. Which it did. Quite badly, I’ll say. 

(Source: Giphy) 

So in order to stop the abrupt bleeding, Super Micro CEO Charles Liang has been working overtime to downplay the whole situation. For instance, Liang sent a letter to customers earlier this month, calling Hindenburg’s allegations "false or inaccurate" (the corporate version of “nah, fam, that ain’t me”), and insisted that the company doesn’t expect any big changes to its already-reported financials.

Still, the real “tell me you’re guilty without telling me you’re guilty” came when Super Micro delayed filing its annual report with the SEC last month, saying it needed more time to “assess” the allegations. Translation: Super Micro is inevitably f**ked. 

(Source: Fortune) 

So in the end, while the stock is still up 40% YTD, let’s not forget that the company has hemorrhaged $20 billion in market value since peaking at over $66 billion in March. And if the Justice Department keeps poking around, that number could drop even faster.

So yeah, Super Micro is getting torched in the hot seat, and unless they pull off a miracle, things could get ugly before they get better. But hey, at least we know Hindenburg Research just manipulated caught the biggest short trade of 2024. Which is cool, I guess. 

(Source: Giphy) 

In the meantime though, whether you’re a “BTFD” kind of investor or you’re just here to watch Super Micro burn to the ground… keep an eye on the stock as we head into the weekend. And as always, stay safe and stay frosty, friends! Until next time…

P.S. Have you seen what the data is showing for current short positions on this weeks alert?! Simply put, we’re looking at over $3,000,000 sold SHORT! No one knows what will happen but if we see a short squeeze it could be one for the record books! Click here asap to get the details… 

Stocks.News doesn't hold any positions in companies mentioned in the article.