SMCI stock has more problems than accounting mishaps, analysts say

Super Micro (SMCI stock) has made its name as a go-to supplier of artificial intelligence servers and direct liquid cooling (DLC) solutions for AI data centers—a critical part of the growing AI infrastructure.

The company counts Elon Musk's xAI as one of its customers.

Super Micro sales more than doubled to $14.94 billion in fiscal 2024, according to its unaudited financials. Analysts project fiscal 2025 revenue to come in at $23.9 billion and reach $33 billion in fiscal 2026.

The company also announced last week that it plans to build a third campus in Silicon Valley that will help accelerate production of DLC solutions for data centers.

"The company’s liquid cooling absorbs heat in servers to allow for higher power density and closer component packing within servers. This is crucial as companies look to speed up their use of AI, which relies on servers," writes Katherine Hamilton of The Wall Street Journal.

But while the San Jose, Calif.-based company shows potential in the AI race, its stock is under pressure because investors are growing worried about the company's accounting shakeup.

DOJ probe and 'glaring accounting red flags'

Despite carving out a solid growth path, SMCI shares dropped 12% in February as the company barely staved off delisting due to a delay in filing its audited annual financial reports by the Feb. 25 deadline set by Nasdaq.

The U.S. Justice Department opened a probe in September after activist short-seller Hindenburg Research published a report in August saying that it found "glaring accounting red flags, evidence of undisclosed related party transactions, sanctions and export-control failures, and customer issues," as The Wall Street Journal reported.

Ernst & Young, which had served as Super Micro's auditor, then quit in October, raising concerns over the company's corporate governance, accounting practices and the board's independence from CEO Charles Liang.

EY's concerns were actually raised before the report from Hindenburg Research was released. Shares of SMCI fell 33% after the shakeup.

Super Micro has since hired BDO Global as its auditor. The company previously paid a $17.5 million fine to the SEC in 2020 after the agency accused Super Micro of improperly recording revenue prematurely.

Super Micro seeks to stabilize internal controls

After the turmoil over the past year, Super Micro has taken strides to get things in order, revealing in a regulatory filing that it has hired the law firm Cooley and a forensic auditing firm to review its internal controls.

The review is ongoing, according to the company. However, some analysts aren't convinced the audit is going to help.

Barclays analyst George Wang notes that "[Super Micro's] competitive moat is shrinking and its checkered past could limit the P/E multiples investors are willing to pay for the stock."

He adds that "we think that SMCI is still subject to future risks from financial controls."