Super Micro Computer(NASDAQ: SMCI) is approaching a make-it-or-break-it moment. Last year, the tech company hit a stumbling block -- one that put its listing on the Nasdaq at risk -- and this crushed its stock performance. Supermicro, a top-performing stock in early 2024, saw its shares plummet more than 65% from September through mid-November.
The problem? Supermicro faced questions about its financial reporting. Concerns started with a short report by Hindenburg Research alleging "glaring accounting red flags." And Supermicro's postponement of filing its audited annual and quarterly reports reinforced investors' worries. This late filing also pushed Supermicro into noncompliance with the Nasdaq, putting the stock at risk of delisting.
In recent times, though, Supermicro has accelerated along the path to recovery. An independent special committee reviewed the company's financial reporting practices and found no evidence of wrongdoing. Supermicro also hired a new auditor and worked with the Nasdaq to establish a new filing date for the earnings reports to maintain its listing on the exchange. In fact, this filing deadline is Feb. 25. Will Supermicro stock surge after that date? Let's find out.
Image source: Getty Images.
The Supermicro story so far
So, first, let's take a quick look back at the Supermicro story so far. The company has been around for more than 30 years, but earnings truly took off with the artificial intelligence (AI) boom. That's because Supermicro makes the servers and full rack scale solutions critical to data center operations -- and AI customers have been flocking to the company for its products.
Supermicro has been a popular choice due to its ability to speedily serve customers with equipment, including the latest innovations from chip designers like Nvidia and Advanced Micro Devices, and tailor that equipment specifically to the customer's needs. The company can do this for two reasons.
First, it works hand-in-hand with chip giants to follow their innovations through development and immediately integrate them into its products. Second, Supermicro's building-blocks technology, with equipment sharing many common parts, makes customizing it relatively easy.
This has resulted in significant revenue growth for Supermicro. The company now generates more quarterly than it did in a full year as recently as 2021. For example, Supermicro's preliminary report for the most recent quarter showed revenue topping $5 billion, while in full-year 2021, it reached $3.5 billion.
Investors saw this momentum and hopped on board. In the first half of last year, the shares rose 188%, even surpassing the percentage gain of market star Nvidia.
Negative sentiment and a turnaround
But the Hindenburg report halted this momentum. And the delay of Supermicro's audited earnings reports to the Securities and Exchange Commission further powered the negative sentiment surrounding the stock. Though since then, as mentioned briefly above, Supermicro has worked hard to turn this situation around, and the results have been positive. The company supported the independent review of its accounting practices, and the key results were:
The committee found no evidence of wrongdoing or fraud at Supermicro.
The company doesn't expect any restatement of reported financials.
Supermicro is following the committee's recommendations and plans to hire more executive-level leaders to support the company as it expands.
Now, let's consider the make-it-or-break-it moment ahead. Supermicro agreed to file its audited 10-K annual and 10-Q quarterly reports by Feb. 25, the date determined by the Nasdaq, so that the company may maintain its listing -- avoiding the big risk of a delisting. The tech player has repeatedly reaffirmed its ability to do this, including during its most recent business update on Feb. 11.
Supermicro's 80% gain
Investors have been optimistic about Supermicro's actions so far and its potential to meet this goal. The stock has climbed more than 80% this year, but it hasn't recovered its losses since declines began.
However, if Supermicro files its reports on time and continues to generate strong revenue growth, there's reason to be confident about further recovery and even gains down the road. After all, the stock today trades for about 21 times forward earnings estimates, a reasonable level, considering Supermicro's growth and strength in the AI market.
But will Supermicro stock immediately surge after Feb. 25? If Supermicro meets the Nasdaq deadline and doesn't restate the previously reported financials, the stock could take off. Supermicro stock has been known to react strongly to both positive and negative news, so I wouldn't be surprised if the shares roared higher following such a major sign of progress. Any disappointment, though, clearly could crush stock performance.
All this means that Feb. 25 should be a big day -- one that current and potential Supermicro investors should closely watch.
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Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices and Nvidia. The Motley Fool has a disclosure policy.
