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Super Micro Computer (SMCI) Faces DOJ Probe and Stock Volatility
Super Micro Computer (SMCI) faces a DOJ probe into its accounting practices, triggering a sharp stock price drop despite the company's history of market-beating returns.
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Super Micro Computer Inc. (NASDAQ: SMCI), a key player in the artificial intelligence server industry, is reportedly under investigation by the U.S. Department of Justice (DOJ), according to sources familiar with the matter. The probe, which is said to be in its early stages, has sent shockwaves through the market, causing significant fluctuations in the company’s stock price and raising questions about its financial practices.
DOJ Investigation and Whistleblower Lawsuit
The DOJ investigation follows a damning report by activist short-selling firm Hindenburg Research, which raised concerns about SMCI’s accounting practices.
According to a WSJ report, a prosecutor from the U.S. attorney’s office in San Francisco is reportedly seeking information related to the case. The inquiry appears to be connected to a whistleblower lawsuit filed in April by Bob Luong, a former SMCI employee. Luong’s lawsuit alleges that SMCI improperly recognized revenue from 2020 to 2022, including booking sales that had not been completed and shipping incomplete equipment to customers.
Hindenburg’s August report also highlighted transactions between SMCI and companies owned by CEO Charles Liang’s family, as well as allegations of shipments to Russian companies in violation of U.S. sanctions.
In response, SMCI delayed filing its annual report and formed a board committee to review internal controls. CEO Charles Liang defended the compasny in a letter to customers on September 3, calling the allegations in the short-seller report “false or inaccurate.” SMCI has requested that Luong’s lawsuit be moved to arbitration, with a court hearing scheduled soon.
SMCI Stock Plunges on DoJ Probe News
The news of the DOJ probe has had a significant impact on SMCI’s stock price. As of 12:31 PM EDT on the day of the report, SMCI’s stock was trading at $387.85, down $70.30 or 15.34%. This sharp decline follows a period of remarkable growth for the company, which saw its market capitalization peak at $66 billion earlier this year.
Despite the recent setback, SMCI’s long-term performance remains impressive. The company has significantly outperformed the S&P 500 index across various timeframes. Year-to-date, SMCI has returned 36.44% compared to the S&P 500’s 20.20%. Over a five-year period, SMCI’s return stands at a staggering 1,911.67%, dwarfing the S&P 500’s 92.08% return over the same period.
Key financial metrics for SMCI include a trailing P/E ratio of 22.80, forward P/E of 13.95, and earnings per share (TTM) of $20.11. The company’s market capitalization currently stands at $22.711 billion. Analyst recommendations for SMCI stock are mixed, with price targets ranging from $325.00 to $1,300.00.
Disclaimer: The author does not hold or have a position in any securities discussed in the article.
Tim Fries
Tim Fries is the cofounder of The Tokenist. He has a B. Sc. in Mechanical Engineering from the University of Michigan, and an MBA from the University of Chicago Booth School of Business. Tim served as a Senior Associate on the investment team at RW Baird's US Private Equity division, and is also the co-founder of Protective Technologies Capital, an investment firm specializing in sensing, protection and control solutions.
