Super Micro Computer (NASDAQ:SMCI) was once a highly popular stock that seemed to run and run to ever higher heights. Its liquid-cooled server technology promised greater efficiency and cost savings for firms investing in AI data centers, and that made the stock a magnet for those looking to get in on the artificial intelligence infrastructure trend.
Over the past year, however, SMCI has fallen more than 60% while other AI stocks marched ahead. Why is SMCI down so much, and is there a case to be made for buying shares in the company in today’s market?
Why Did Super Micro Stock Fall So Much?
Super Micro stock fell after Hindenburg Research, a short-selling firm, released a report that essentially accused the firm’s leadership of accounting malpractice.
It wasn’t long before rumors spread that Super Micro Computer had sold high-tech components to sanctioned Russian entities via shell companies in Turkey and Hong Kong.
When regulatory filings were delayed because of worries over accounting, SMCI narrowly avoided being delisted from the NASDAQ. Then the auditor announced it was no longer going to support SMCI in that capacity and fear levels heightened among shareholders.
As it turns out in the end, Super Micro did eventually met the deadline imposed to remain listed on the NASDAQ, but the stock is still suffering from the fallout of Hindenburg’s investigation.
Adding to the woes is the fact that this isn’t the first time Super Micro Computer has been accused of accounting malfeasance and what will cause some readers to be astonished is the fact it faced the possibility of being removed from public trading. As Hindenburg pointed out, the company settled a case with the SEC in 2020 over improperly recognized revenues.
As a result of these earlier cases when SMCI failed to file accounts on time, the accusations raised by Hindenburg carried more weight with shareholders.
Like other AI stocks, SMCI also reacted negatively when Chinese firm DeepSeek announced its more cost-efficient approach to AI in late January. The blow to the AI ecosystem as a whole came at a time when Super Micro was already suffering from all of the unique challenges outlined above and before it had met the deadline to avoid delisting.
A final piece of the puzzle that has caused SMCI shares to deflate alongside other tech stocks is the universal impact of tariffs. With input costs rising on basic materials and electronic components, SMCI and other server manufacturers are likely to see difficulties in the months ahead. This is especially true as retaliatory tariffs take effect, as American servers could become less attractive in other markets.
Does Super Micro Computer Have a Moat?
Dell and HP, in particular, appear to be grabbing market share and quickly expanding their sales which pose a threat to SMCI’s core business.
With SMCI lacking a strong moat and other players with deep pockets competing for market share, it’s not clear that the company will be able to carve a reliable long-term niche out for itself.
Super Micro’s Valuation
The sharp selling pressure of the last several months has, unsurprisingly, brought SMCI down to a fairly low valuation. Shares of the company currently trade at just 16.4 times earnings, a remarkably small multiple for a tech stock set to potentially benefit from the AI boom. The price-to-sales ratio is even more modest at 1.2.
Taking all of Super Micro Computer’s issues into account, however, it’s possible that the stock could represent a proxy value trap.
Given how much doubt surrounds the company’s accounting and the potential competitive pressures it faces, it’s far from unlikely that there could be more downside in SMCI before all is said and done.
Is There Any Bull Case Left to Be Made for Super Micro Computer?
So far, we’ve gone over the many elements of the bearish case on SMCI. That isn’t to say, however, that there are no positives left in the business. To begin with, the rapidly growing demand for AI servers will likely keep the companies that provide them expanding for quite some time. Through 2032, this market is expected to grow at a compounded annual rate of 18%. This growth will likely create a great deal of opportunity for companies like Super Micro.
Super Micro also appears to be ready to move past the difficulties of the past several months and begin expanding its business again. At the end of February, the company announced that it would be building a third campus in Silicon Valley to increase its manufacturing capacity. This expansion, however, may very well take a very long time to show up in the company’s financials and is likely to be quite capital-intensive.
After selling off so much, SMCI share price does have the potential to produce very strong returns if the company can regain its footing. Even on a 12-month basis, analyst price forecasts suggest that the stock could rise by nearly 30%.
To some degree, this ability to deliver high returns from a low baseline has been on display since SMCI regained its NASDAQ compliance. The stock was up by over 34% at one stage in Q1, mostly driven by the fact that it’s no longer at risk of being delisted.
Although there are still opportunities for Super Micro, the stock looks extremely risky from an investor perspective at the moment. The investor concerns raised by the Hindenburg report still haven’t been fully dispelled, and Super Micro’s competitive position doesn’t seem especially strong. Given that the stock market is already becoming increasingly volatile amid macroeconomic challenges, the uncertainties unique to Super Micro Computer could make its stock too risky for the vast majority of investors. Right now, SMCI shares are probably worth holding, but the argument for buying them doesn’t seem to be especially strong.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.
