Key Points:

• Supermicro’s Fall: Sharp decline after bad earnings and a critical Hindenburg report.
• Accounting Issues: Hindenburg exposed accounting irregularities and missed filings.
• Uncertain Future: The company’s future is uncertain, with regulatory concerns looming.
• With the competition heating up for Nvidia, investors are already starting to look ahead to 2025’s best investments. See what the hype is all about here.

Doug and Lee discuss the significant decline of Supermicrocomputer’s (NASDAQ: SMCI) stock, highlighting the issues that led to its downfall. The company, once booming alongside AI giant NVIDIA (NASDAQ: NVDA) , faced severe setbacks after missing financial targets in August and being targeted by the Hindenburg Report, which raised concerns about accounting irregularities and failure to file a 10-K report. Doug notes that while some companies survive short-seller attacks, the failure to file an SEC document is a huge red flag, often leading to long-term investor distrust. Lee adds that rapid stock growth can lead to complacency within companies, allowing issues to fester. Both agree to revisit the situation once more information is available, particularly if the SEC takes action or if Supermicrocomputer addresses the claims effectively.

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Edited Video Transcript:

I have rarely seen a stock get shot as hard as this one.

So tell us… Tell us the story because it’s an awful one.

Well, I mean, as the AI scene started to develop in a huge way 18 months ago or so, one of the companies that took off was Supermicrocomputer.

And it was neck and neck tied with NVIDIA for just an incredible rise, an incredible rise.

And then all of a sudden, they hit some bad numbers early in August.

And then the dreaded Hindenburg Report.

And for our younger listeners and viewers, the Hindenburg was a zeppelin from Nazi Germany that blew up over New Jersey in 1937.

You’ve probably seen the picture.

But anyway, Hindenburg went in and said, there’s accounting irregularities we can’t really adjust for.

They didn’t file a 10-K, which is an annual report.

So what’s going on?

And they really haven’t pushed back real hard, but the stock has just got hammered.

Well, I think it’s a very good lesson.

They didn’t push back hard because I think they understood that they actually, you know, it’s one thing to come out and beat your chest or cry about something and then say, you know, these guys were wrong.

Everything we did at our company was done perfectly.

But the chances that they did everything perfectly at the company are, it looks pretty low.

Well, and you know, there’s short sellers that just toss out everything they can and their book is loaded way before they toss it out.

The guys in Hindenburg are pretty thoughtful about the shorts they put on.

And obviously they’re talking their book, but everybody talks their book.

But in many cases, when they’ve gone after people, they’ve been 100% correct.

If you look at the company, did they also have the problem that they were being left behind in AI, that they were not going to be one of the…

Obviously, you’ve got one problem, which is what Hindenburg said.

But did they also have the problem that they weren’t going to be one of the super top tier companies in this?

I think that’s entirely possible.

I mean, they have some good products and it was a solid company, but again, they got caught up in, and they had some pretty big earnings reports a year ago and those, but they got caught up in the tsunami of AI and it didn’t matter.

It was like the tsunami of .com in 1999.

You know, if you had that attached to your name in any way, shape or form in 1999, it was like you were on a ride.

And I think that could have been the same thing here.

And then I think they put in a big split, not unlike NVIDIA.

And splitting your shares doesn’t do anything other than give you the same amount of value with more or less shares, depending on what kind of split it is.

It’ll be interesting to see because their numbers in early August were not good.

They were very disappointing.

And that started, you know, rolling the snowball downhill.

And then the Hindenburg report hit.

And that just exacerbated what was already a, you know, it’s bounced back a little bit, you know.

But still, I think the trend is for sure down at this juncture.

I have never seen a situation where a public company failed to file a major SEC document or it was anything other than hugely bad news.

That never turns out good.

I agree.

If it’s a penny stock and they’re traded on the bulletin board or something and they don’t file, that’s one thing.

But to have a significant public company have to admit that they were either going to file something late or amend it.

Because it was wrong.

I really can’t think of a bigger red flag.

I understand the company may have some fundamental problems, but to me, I would never ever invest in a company like that again, just because of the regulatory issues, just because of the government filings, forget how well the company’s doing.

Well, and you know, often when stocks explode higher in a parabolic move like that, people started thinking, Whoa, I’m extreme, you know, shareholders, especially insiders, like I’m extremely wealthy now.

You know, I’m above anything that’s like, you know, we can make a little bit, we can have a little bit of irregularities here and there.

That’s no big deal.

And the thing is, is I think when it gets away from them and runs away from them and makes them super wealthy on paper, maybe they do look the other way more than they should.

And again, like you said, when somebody fails to report something major, like an annual report, filing they’re going through everything now so there’s probably a lot of people there that are just oh my god i had no idea this was going on and then there’s a core of people that maybe did know.

Well look we’ll come back to this.

I mean this is when you start to have problems filing with the sec and there’s you know we’ll come back to this once the dust settles and it may be a couple of months before you know yeah sec gives something it’s blessing or they’re fines, but let’s come back to this.

Once there’s something definitive to be said about either what Hindenburg claims are, or if the government comes out and says, okay, they didn’t file this, you know, in essence, the government says, look, we’re going to sanction you because you, you screwed up the basics of being a public company.

Yeah, absolutely.

And, you know, um, The big question is, is it a one-time only hiccup?

Do they have errors that can be fixed?

Or is it an Enron where it’s a donut?

Which I kind of don’t think that’s the case.

And if it was really bad, somebody would go in and buy the parts.

But I think that they’re in a situation now where they’re going to have to address this.

And yeah, it’ll be interesting when we can revisit this and see, well, have they addressed it?

Are they putting the facts out to the public?

Yeah.

All right.

We’ll be back to this when there’s something definitive.

Yeah, we will.

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