Super Micro Computer (SMCI -1.31%) stock had a big November and has begun December with a bang. It’s been a somewhat hectic time for the supplier of artificial intelligence (AI) server stacks and coolant systems. Yet if all the concerns turn out to be less impactful than many investors have feared, there could be much more upside for these shares, too.
The big recovery in Supermicro shares started with a 12.1% gain over the month of November, according to data provided by S&P Global Market Intelligence. But it didn’t stop there. In just the first two trading days of December, the stock has surged more than another 30%. And it may not be done yet.
Investors panic over accounting questions
That massive move didn’t mean the stock has fully recovered from the panic selling that preceded it, though. While a recovery is underway, it’s still down by more than 45% over the last six months. Here’s a brief summary of what caused the stock to plunge:
- Short-seller firm Hindenburg research released a report in late August accusing Supermicro’s management of accounting manipulation, export control failures, and other business culture issues.
- Supermicro immediately followed that with a delay in filing its 10-K annual report for its fiscal 2024 period ended June 30, 2024.
- The company received a noncompliance letter from the Nasdaq Stock Market.
- Supermicro’s auditor resigned in late October after raising concerns months earlier.
- Supermicro released initial results from an independent special committee on Nov. 5 finding “no evidence of fraud or misconduct on the part of management or the board of directors.”
- The company filed a compliance plan with Nasdaq and named a new auditor on Nov. 18.
- The special committee released details of its completed review on Dec. 2 supporting preliminary findings, and noting that no restatement of previously reported financial results is expected.
The result has been a sense of investor relief bringing buyers back into the heavily shorted stock. And that momentum may not yet have run its course. About 17.5% of the company’s stock float was shorted as of mid-November, according to MarketWatch. But investors should realize that the ongoing short squeeze will come to an end, and the focus will need to be back on the business itself.
Supermicro has more work to do
The company plans to adopt several recommendations from the special committee. Those include hiring a new chief financial officer (CFO), a chief compliance officer, and general counsel. It also will begin a program for continuous improvements in its financial controls and compliance processes.
One question that remains unanswered is how much the underlying business has been affected by the situation. The company has released preliminary forward revenue estimates that, while short of prior guidance, still indicated very strong year-over-year sales growth.
But until those figures are confirmed, Supermicro stock remains risky, and still may not be the place for more conservative investors.
Howard Smith has positions in Super Micro Computer. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
