Super Micro Computer (NASDAQ:SMCI) is a closely-watched high-growth tech stock that’s seen an incredible boom over the past year, thanks to the AI revolution. A provider of direct liquid cooling solutions for server farms around the world, Super Micro’s technology has become increasingly ubiquitous in the race for greater efficiency among data center providers, given the rise of high-performance computing needs required to power the future of AI.

However, the company hasn’t been able to shake a number of headwinds, with the most recent headwind coming courtesy of a short report from Hindenburg Research. This report, released on August 27, highlighted allegations of poor accounting practices, accounting manipulation, self-dealing, and sanctions evasion. These are serious accusations, and the company is clearly taking them seriously, announcing it will delay filing its annual 10-K report with the SEC for its fiscal year ending June 30. This move has validated some of the report’s claims, and led to a significant amount of investor doubt in the company. 

Already a high-risk investment, SMCI stock faces serious downside ahead if the company can’t address the market’s concerns over its alleged accounting practices. From its 52-week high of more than $1,200 per share, SMCI stock now trades closer to $400 apiece. Let’s dive into whether this massive dip is a buying opportunity, or if this short report could be the end of Super Micro. 

Postponed Earnings

Super Micro Computer shares dropped sharply, falling 26% in a single day, after the company announced it will delay its 10-K filing with the SEC. Notably, despite this plunge, and the aforementioned move from its peak this year, SMCI stock is still up more than 50% on a year-to-date basis. 

This reporting delay was cited as a necessary move by the company’s management team to garner enough time to assess its internal controls over its financial reporting processes. Notably, a class-action lawsuit has already been filed against the company as a result of these allegations and the corresponding stock price plunge, which will remain a headwind for the company for some time. 

We’ll have to see how these issues ultimately play out, and what the result of this class-action lawsuit will be. But in the absence of any material new information on the company, it’s clear that near-term downside risk remains elevated, even at these lower levels. The company’s most recent earnings report in Q4 showed revenue which beat expectations, but earnings growth that missed due in part to lower gross margins. If things are worse than the company initially reported, it’s entirely possible this is a stock that could have a lot more downside from here. 

Why Some Remain Bullish on Super Micro

That’s a ton of bad news to digest. And there’s no mistaking it – Super Micro’s management team has a lot of questions to answer. 

However, Super Micro’s growth over the past year has been notable. And even if a chunk of this growth was fictional – either supported by channel stuffing or over-reported – it’s clear that demand for direct liquid cooling solutions is surging. As a leading provider of server and storage solutions in the market, investors are clearly looking for picks-and-shovels ways to play the AI race. And Super Micro continues to be a top option in this regard. 

Bank of America analysts estimate that Super Micro holds around 10% of the dedicated server market, with this market share expected to grow to 17% over the next three years. This comes at a time when the market is expected to grow by 150% over that time frame. Accordingly, if Super Micro can continue to grow its slice of a pie that’s increasing in size, that’s very bullish for long-term investors.

The question is just how much the company overstated its previous revenue and earnings. If the revised financials come back with minor changes, and the company is cleared of wrongdoing, this could turn out to be a buying opportunity many may have wished they bought.

So, Buy or Sell SMCI Stock? 

Super Micro’s risk profiles has increased considerably following this short report and the delayed release of its latest financials. To be honest, I’m not sure which direction this stock is going to be headed for here.

I am bullish long-term on the future of AI, and what this future growth will portend for server and storage solutions companies like Super Micro. However, these allegations do throw a monkey wrench into the mix in terms of valuing this stock, particularly when investors can’t trust the previous numbers that were reported.

That said, I think investors who are on the fence may want to nibble at this stock over time. If it’s proven that the company hasn’t materially mis-stated its earnings, this is a stock that could fly higher from here. Looking at this stock from a balance of risks, I’d say the upside potential may be disproportionate relative to the stock’s downside risk. 

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