On Thursday, Super Micro Computer (NASDAQ:) shares experienced a downgrade from Buy to Hold by Argus, following significant developments that raised concerns among investors.
The technology company’s shares saw a steep 33% decline on Wednesday after a company 8K filing revealed the loss of a key accounting partner, Ernst & Young LLP (EY), and a delay in communicating this to shareholders. The filing, which disclosed EY’s resignation on October 24, 2024, came six days after the accounting firm had stepped down.
EY had previously expressed concerns in July 2024 about issues pertaining to governance, transparency, and the completeness of Super Micro’s communications. The company has yet to file its 10K report for the fiscal year ending in June 2024.
The recent events follow allegations made by Hindenburg Research in August 2024, accusing Super Micro of accounting irregularities, failure to enforce export controls, and dubious related-party transactions, which have led to an investigation by the U.S. Department of Justice.
Despite these challenges, Super Micro has reported rapid growth in sales and earnings, outpacing the technology industry in recent years. The company’s management attributes this success to its global leadership in AI-accelerated computing platforms, which are in high demand for advanced applications and optimized rack-scale solutions.
Argus has stated that due to the loss of its auditing firm and the ongoing investigation by the Department of Justice, Super Micro’s stock is no longer trading based on fundamentals.
The firm indicated that it would consider reinstating Super Micro to the Buy list once the company secures a new accounting firm, becomes current with its filings, and resolves the issues with the Department of Justice. Until then, Argus believes a Hold rating is justified for the intermediate term, while maintaining a long-term Buy rating.
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