The year 2024 represented the best and worst of times for Super Micro Computer (NASDAQ: SMCI). The server maker started the year with a bang, reporting triple-digit revenue growth, thanks to demand from artificial intelligence (AI) customers. In fact, Supermicro's quarterly revenue this year surpassed annual revenue as recently as 2021. The company also went on to reach other important milestones, such as winning invitations to join the S&P 500 and the Nasdaq 100.
All of this helped Supermicro soar 1,200% in just one year to a high in March. But in recent months, the top equipment maker has faced challenges that have weighed heavily on its stock's performance, which has dropped 70% from its high.
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A Hindenburg Research short report alleged troubles at the company. And Supermicro itself disappointed investors, saying it couldn't file its annual and quarterly financial reports on time.
Though Supermicro has offered investors some signs of a turnaround in recent weeks, the company just got another bit of negative news last week: It will be exiting the Nasdaq 100 Index as of Dec. 23. This is part of the index's rebalancing, a time when certain stocks are added or removed.
Considering the positives and negatives of recent weeks, could this beaten-down stock recover in 2025?
Image source: Getty Images.
Supermicro and Nvidia
First, here's a quick summary of the company's situation. Supermicro's earnings have taken off in recent quarters as AI customers rushed to order servers and full rack scale solutions for their data centers. The company works hand in hand with chip giants like Nvidia to immediately incorporate their innovations in its products. This means that Supermicro can benefit from their new launches, and one in particular could be important -- the production ramp up of Nvidia's Blackwell architecture, happening this quarter.
But the Hindenburg report shook investor confidence, which worsened when Supermicro delayed the filing of its financial reports and its auditor quit. Investors worried about potential financial restatements and a possible delisting from the Nasdaq due to the late reporting. The Nasdaq contacted Supermicro this fall, ordering it to take action or eventually lose its spot on the exchange.
Better news followed. The company hired an auditor and agreed to a reporting timetable to regain Nasdaq compliance, and it's pledged to file reports by Feb. 25. Supermicro also reported findings from an independent review of the company's financial reporting practices, and reviewers found no evidence of fraud. Supermicro said it didn't expect any financial restatements.
What's next for Supermicro
What may be ahead for Supermicro? The Nasdaq 100, an index of the 100 biggest non-financial stocks on the Nasdaq, will remove the company as of next week.
The consequences? Funds that track the Nasdaq 100 will sell the stock so they remain aligned with the composition of the index. This could put a bit of pressure on the stock in the short term.
Beyond this, one uncertainty remains, and that's Supermicro's financial reports. It's encouraging that the company doesn't expect restatements, but it's still best to wait for the audited reports before saying the company's difficulties are over.
Let's get back to the original question: Could this beaten-down stock recover in 2025? Absolutely.
The stock is trading for only 11x forward earnings estimates right now, so some aggressive investors might start picking up shares. And if the company's audited reports look good and it avoids a Nasdaq delisting, the stock may head higher -- and make significant progress along the recovery path in 2025.
That said, I wouldn't recommend buying Supermicro right now -- even at today's bargain valuation -- because understanding a company's current financial situation before investing in it is crucial. For that, investors need to see the audited financial reports.
Yes, Supermicro could be a big recovery story in 2025. Today, however, it's better to put it on your watch list instead of your buy list.
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Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
