Super Micro Computer (NASDAQ: SMCI) has been one of the most polarizing stocks to own this year. It started out as a hot artificial intelligence (AI) company with mammoth potential, but it has recently become a risky investment with questionable and potentially inflated numbers due to poor accounting controls and procedures.
Some investors believe the company has put the fears about its business to rest after an independent, special board committee recently reviewed its operations and found no evidence of any wrongdoing by either management or the board of directors. The stock has been rallying again, but it’s still down more than 60% from its 52-week high of $122.90.
If the company proves its doubters wrong, Supermicro could be destined for even greater gains in the weeks and months ahead. Could it be due for a huge rally in 2025?
There have been three main issues that appear to have been weighing on Supermicro’s valuation this year:
The company’s gross margins have been shrinking. This is a considerable issue because without strong margins, its prospects for growing its bottom line worsen, and that can make the stock a much worse buy.
Hindenburg Research, a notable short-seller, released a report in August claiming that Supermicro was involved in accounting manipulation and was effectively inflating its numbers.
The company’s auditor, Ernst & Young, resigned in October, which raised concerns about its internal controls and exacerbated worries about the reliability of its financials. The company is also late on reporting its quarterly and annual filings.
The tech stock has been falling in recent months due to these concerns. But with the company recently announcing that it had found a new auditor in BDO and that a special committee didn’t find any evidence of wrongdoing, investors appear to be more bullish on the stock lately since it has been rising in recent weeks.
For Supermicro to put fears around its business to rest, at least for the most part, it needs to produce solid audited financials. If it can do that, it should be successful in…
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