Super Micro Computer, Inc. (SMCI) rode the artificial intelligence (AI) wave to massive gains, emerging as a powerhouse in supplying AI-processing servers. Scaling the heights to a record $1,229 in March, it outpaced the broader S&P 500 Index returns, driven by robust revenue and profit growth.

As profit-taking ensued, sparks flew with SMCI’s announcement of a 10-for-1 stock split slated for October, reigniting investor interest. Stock splits, akin to magnets, draw investors, lowering share prices and widening accessibility. Historically, they’ve sparked a 25% to 30% rise in share price, dwarfing the S&P 500’s annual returns of 10% to 12%.

However, recent headlines took a different turn. A report from short seller Hindenburg Research on Tuesday stirred a tempest, causing SMCI stock to plummet 19% after the company postponed filing its annual Form 10-K with the SEC.

Despite concerns, some notable analysts maintain cautious optimism on the AI server giant. With SMCI’s stock hovering near year-to-date lows, the question looms – is it prime time for investors to jump in before the split? Let’s delve deeper.

Unpacking the Super Micro Computer Stock Essence

Established in 1993 and headquartered in San Jose, Super Micro Computer, Inc. (SMCI) has burgeoned into a tech behemoth valued at $24.8 billion. Renowned for its liquid-cooling server and storage solutions, SMCI engineers an array from modular blade servers to advanced storage systems. Targeting enterprise data centers, AI, and cloud computing, the company melds innovation with bespoke customer service, solidifying itself as a tech infrastructure vanguard.

SMCI kicked off the year with a flourish, transitioning from a small-cap Russell 2000 Index entrant at the outset of 2024 to an S&P 500 member in March and the Nasdaq-100 Index ($IUXX) by July.

While SMCI shares now wallow almost 64% below those March peaks, they still boast a 56% rise in 2024 and a 73.8% surge over the past 52 weeks, outshining the S&P 500 returns over both periods.

From a valuation lens, Super Micro currently trades at a price-to-earnings (P/E) ratio of 21.52x, casting a shadow on the tech sector median. Further, with a price/earnings-to-growth (PEG) ratio of 0.69x, potential lurks for the stock to be undervalued concerning its future growth trajectory.

Super Micro Stumbles on Q4 Earnings Miss

On August 7, Super Micro shares nosedived, plummeting over 20% post an underwhelming fiscal Q4 earnings report. Despite boasting a colossal 143.6% yearly revenue surge to $5.31 billion, slightly surpassing the $5.30 billion analyst consensus, its EPS of $5.51 missed estimates by 27.1%, despite a 60.6% YoY uptick.

Super Micro’s gross margin tumbled to 11.2% from 17% yesteryear and 15.5% last quarter, attributed to a surge in low-margin hyperscale data center business and elevated costs for Direct Liquid Cooling components. Operating margins also slid to 6.5% from 10.4%.

Amidst the mix, management cautioned about ongoing shipment delays due to supply chain disturbances and postponed Nvidia’s Blackwell systems deliveries, pivotal for Super Micro’s high-margin DLC solutions. This confluence of issues could exert further pressure on margins in the short haul.

However, Super Micro anticipates a gross margin rebound on the horizon, expecting the supply chain bottlenecks inflating component prices to smooth out over the forthcoming year. Management champions optimism, citing reduced manufacturing costs from new establishments in Malaysia and Taiwan, aligning their sights towards expansion in the Americas and Europe.

Peering into fiscal Q1, management forecasts revenue between $6 billion and $7 billion, translating to a 183% to 230% surge, with non-GAAP EPS pegged between $6.69 and $8.27. For fiscal 2025, revenue prospects stand at $26 billion to $30 billion, promising a 74% to 101% annual growth.

SMCI analysts prophesize EPS of $28.50 for fiscal 2025, marking a 41.9% uptick annually, with the bottom line scaling another 11% to $31.63 by fiscal 2026.

Unveiling Super Micro’s Growth Bedrock

In the flurry post-earnings slump, the cloud eclipsing Super Micro Computer deepened, with Hindenburg Research flagging serious doubts about Super Micro. The short-seller reeled out accusations of dubious accounting practices, export control breaches, and worrisome customer concerns while unveiling a short position on SMCI stock.

The server titan’s historical trysts with regulatory hurdles

Allegations of murky financial dealings are resurfacing, darkening the cloud over Super Micro’s prospects. Accusations of dubious revenue recognition, controversial executive re-hiring, and precarious ties with related parties echo a troubled past that the company has been unable to escape.

The saga unfolded in 2018 when SMCI faced delisting from the Nasdaq due to missed financial filings. Despite a $17.5 million SEC settlement in 2020, allegations from Hindenburg Research claim that Super Micro reverted to its old ways by re-employing executives tainted by scandal. Moreover, concerns loom over the firm’s business connections with CEO Charles Liang’s brothers, who wield control over crucial suppliers, raising suspicions of clandestine transactions and potential conflicts of interest.

To compound matters, reports hint at possible violations regarding sanctions, as a surge in exports to Russia paired with customer service glitches reportedly alienated significant clients like Nvidia, CoreWeave, and Tesla (TSLA).

If substantiated, these issues could rip through the fabric of Super Micro’s integrity, inflating the risk profile significantly. The ensuing ambiguity injects doubt into the company’s growth trajectory, potentially ushering in a spell of volatility that could leave investors standing on shaky ground.

Amid an initial dismissal by investors, the delayed filing of Super Micro’s annual report for the fiscal year ending June 30 has triggered fresh concerns, prompting a sell-off in shares. The recent market turbulence mirrors the mounting unease surrounding SMCI, rendering it one of the more perilous bets in the landscape of large-cap AI stocks.

Analysts’ Perspectives on Super Micro Stock

In a cascading wave of reactions this week, investment entities have weighed in on SMCI. Wells Fargo (WFC) swiftly reacted by slicing its price target on the AI server company from $650 to $375, citing uncertainties in revenue recognition and the company’s tainted history. The firm’s revised valuation reflects a more conservative stance, factoring in a 9x to 10x P/E ratio based on SMCI’s earnings projections for 2025.

JPMorgan (JPM) entered the fray to defend Super Micro, asserting that the Hindenburg report offered scant proof of accounting irregularities beyond revisiting the 2020 SEC charges and presenting limited fresh insights on SMCI’s existing business relationships with the founder’s siblings’ companies.

Presently, the consensus rating for SMCI stands at “Moderate Buy,” albeit with a gradually diminishing bullish sentiment. Out of 13 analysts providing coverage, six advocate a “Strong Buy,” six suggest a “Hold,” and one recommends a “Strong Sell.”

The mean price target for SMCI sits at $922.54, indicating an upside potential of 108% from current levels. Nevertheless, despite the room for ascent, Super Micro appears to be perched on a precarious ledge given the accounting delays, making it a riskier proposition for investors. Prudence is advised before venturing into the turbulence surrounding the company’s future.