With its shares more than doubling year to date, Super Micro Computer (SMCI -5.40%) is bouncing back from the crisis caused by uncertainty about its accounting practices. But is this recovery a fluke or the start of a new bull run? Let’s dig deeper to determine what 2025 might have in store for this artificial intelligence (AI) hardware company.
A Silicon Valley server maker
Founded in 1993, Super Micro Computer has long been one of Silicon Valley’s most prominent makers of server and data center hardware. Nevertheless, the stock languished in relative obscurity, with shares practically flat from 2015 to 2021, until the emergence of ChatGPT in 2022 sparked an epic bull run to an all-time high of $119 in early 2024.
Supermicro, as it’s also known, helps turn graphics processing units (GPUs) created by chipmakers like Nvidia and Advanced Micro Devices into ready-to-use computer servers. It specializes in energy-efficient designs that could save clients money as they run and train AI algorithms.
This middleman role allows the company to indirectly benefit from its partners’ innovations in chip design and enjoy explosive operational growth.
Accounting uncertainties scared investors
Supermicro’s bull run was already stalling by mid-2024, but the declines came to a head in August when famous short-seller Hindenburg Research released a scathing report accusing it of accounting manipulation, sanctions evasion, and other serious infractions.
Shortly afterward, Supermicro delayed filing its annual report for the fiscal year 2024. And its former auditor Ernst & Young resigned, citing an unwillingness to be associated with its financial statements.
Where there is smoke, there is often fire, and this was a lot of smoke. Furthermore, the company has a history of regulatory trouble. In 2020, the Securities and Exchange Commission fined it $17.5 million for accounting violations. In 2018, shares were delisted from the Nasdaq exchange due to a lapse in financial reporting.
Investors feared the recent filing delay could cause Supermicro to be delisted again, which could hurt the stock price by making shares less liquid and scaring away more risk-averse institutional buyers.
However, it looks increasingly likely that this won’t be the case. Management believes it will be able to file its delayed financial reports by Feb. 25 and reiterates its claim that none of its prior filings will need restatement.
This update is a huge positive sign for Supermicro because it suggests fears of an accounting scandal may be overblown, shifting attention back to the company’s excellent operational momentum.
Image source: Getty Images.
Supermicro’s business is booming
According to a preliminary release, management expects fiscal second-quarter sales to have grown 54% year over year to between $5.6 billion and $5.7 billion as clients continue to buy its data-center liquid cooling systems and AI servers. This growth rate is impressive, but investors can expect it to accelerate this year as Supermicro’s partner Nvidia continues rolling out its new Blackwell GPUs.
This month, Supermicro confirmed that it had entered full production of servers using the Blackwell-based chips. This should be a significant tailwind as data center clients seek to stay relevant in the increasingly competitive generative AI market.
While Supermicro is not necessarily out of the woods yet (regarding the accounting and legal uncertainty), its current valuation seems to price in potential challenges. With a forward price-to-earnings multiple of just 23, shares are cheaper than the Nasdaq average of 28 despite its healthy growth rate.
I’m very optimistic about Supermicro, but some investors may want to wait for some of the uncertainties to die down before considering a position in the company.
Will Ebiefung has positions in Super Micro Computer. The Motley Fool has positions in and recommends Advanced Micro Devices and Nvidia. The Motley Fool has a disclosure policy.
