Super Micro Computer (NASDAQ: SMCI) roared into the year with strength as a leader in the high-growth area of artificial intelligence (AI). The company makes a variety of equipment, such as servers and full-rack scale solutions, crucial to AI data centers, and this has helped revenue soar in the triple digits in recent quarters. The share price followed, climbing 188% in the first half of the year.
But a series of troubles that started with a short report in late August set off a decline in investor confidence -- and a drop in the share price. The shares tumbled 22% in the four trading sessions after the short report alleging accounting problems at Supermicro. They continued their declines as the company delayed filing its 10-K annual report and a 10-Q quarterly report and lost its auditor.
Since that news several weeks ago, though, Supermicro seems to have turned things around. The company hired a new auditor to catch up on those filings, and in the latest positive news, a special committee investigating Supermicro's accounting practices found no evidence of fraud. Could Supermicro, now trading at bargain levels, become the biggest recovery story of 2025? Let's find out.
Image source: Getty Images.
Supermicro's successes and troubles
First, let's walk through Supermicro's successes and troubles over the past year. The company started 2024 off on the right foot, reporting its first $3 billion quarter, with revenue that surpassed annual revenue as recently as 2021. Demand from AI customers was soaring, and catalysts such as the launch of Nvidia's new Blackwell architecture promised to help this momentum continue. Supermicro incorporates chip designers' innovations into its systems, so their new releases translate into growth for the equipment maker.
Another victory for Supermicro: The S&P 500 invited the stock to join, showing that Supermicro had become one of the major companies powering today's economy. Finally, Supermicro shares climbed so high -- beyond $1,000 earlier this year -- that the company announced a 10-for-1 stock split, with the new split-adjusted shares to start trading as of Oct. 1. By lowering the per-share price through the issuance of new shares to current holders, stock splits open up the investment opportunity to a broader range of investors.
Then came the difficult period, launched by a Hindenburg Research short report alleging "glaring accounting red flags" and other problems. Supermicro called the statements "false or inaccurate." But the shares continued to decline as the company delayed its annual report and a quarterly report and its auditor quit. This delay in reporting prompted the Nasdaq to send Supermicro a non-compliance letter, the first step to a possible delisting.
The special committee's conclusions
Meanwhile, an independent special committee formed by the Supermicro board reviewed points brought up by former auditor Ernst & Young and recently completed its mission. The special committee recommended the appointment of a new chief financial officer and the addition of executive-level positions to keep everything on track, considering Supermicro's rapid growth in recent times. But the committee, in its review, found no evidence of fraud.
Supermicro also recently said it sent a compliance plan to the Nasdaq and aims to file reports according to the exchange's timetable. Importantly, the company said it doesn't expect any restatements from the fiscal year that ended in June or previous fiscal years.
These two elements -- the special committee's conclusion and Supermicro's compliance plan -- are excellent news, showing that the worst of outcomes may have been avoided. I'm talking about findings of fraud, a Nasdaq delisting, and major financial restatements.
Is Supermicro out of the woods?
That said, before we can truly breathe a sigh of relief, it's important to see the audited financial statements once they're available. Right now, it's too early to say Supermicro is completely out of the woods. So, even though Supermicro shares trade at the bargain level of 14 times forward earnings estimates, it's still risky to buy the stock today.
Now, let's get back to our question: Could Supermicro become the biggest recovery story of 2025? This will depend on the contents of those financial statements and whether they're filed according to the Nasdaq's requested timetable.
If Supermicro misses those targets, it's unlikely the shares will take off. But if the company does satisfy investors with its earnings and the Nasdaq with compliance, Supermicro shares may soar -- and this AI equipment giant could become the top recovery story of the new year.
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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.
