On Thursday morning, Super Micro Computer (SMCI) looked like it would trade toward $500. At the time, Micron (MU) posted strong memory sales that lifted AI-related suppliers. Unfortunately, by late morning, the Wall Street Journal reported that the U.S. Justice Department would investigate SMCI.
The government is reportedly acting on Hindenberg Research’s August 27, 2024, short-sale report. Although the Justice Department should not help short-sellers from profiting on bearish bets, investors have serious concerns about SMCI. The firm said last month that it was unable to file its annual 10-K report on time. The firm cited a lack of resources. SMCI may have trouble getting an accounting firm to sign off on the financial data.
Accountants may not want to have the liability that may result if Hindenberg is proven correct.
Fundamentally, SMCI’s business did not change. The company must increase gross margins toward the 15% range. A $40 - $50 EPS is achievable. At a 15x price-to-earnings ratio, SMCI stock would have a value of up to $750.
Stock Split Delay or Cancellation
Investors will have a hard time recalling any firm added to the S&P 500 (SPY) index, plans to split its shares, and failed to file its 10-K. Shareholders should consider reducing or closing their position in SMCI stock. The risks are increasing greatly and the company will no longer have a stock-split catalyst.
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