Super Micro Computer (SMCI -12.17%) stock is getting hit hard in Thursday’s trading. The server specialist’s share price was down 10.8% as of 2:45 p.m. ET. The stock was down as much as 18.6% earlier in the daily session, and trading was temporarily halted due to the high level of volatility.
The Wall Street Journal published a report this morning stating that the U.S. Department of Justice (DOJ) had commenced an investigation into Supermicro. The reported investigation comes on the heels of a report published by short-seller Hindenburg Research alleging bad accounting practices and structural weaknesses in the business.
Supermicro stock faces another bearish catalyst
According to the report, a San Francisco-based attorney at the U.S. prosecutor’s office in the city has been contacting people connected to Super Micro Computer to gather information about the company. The report’s authors suggest that the inquiries appear to be related to accusations of accounting violations from a former employee.
News that the DOJ may be investigating the company follows a report published by Hindenburg Research at the end of August alleging that it had discovered new evidence of accounting manipulation by Supermicro. The company had previously paid a $17.5 million fine to the Securities and Exchange Commission (SEC) following allegations that it had prematurely recorded revenue and understated expenses. In addition to raising accounting concerns, Hindenburg also stated that Supermicro’s core business had significant weaknesses and lacked meaningful competitive differentiation.
Has bearish sentiment for Super Micro Computer stock become overblown?
While the report suggesting Supermicro is being investigated by the DOJ is understandably driving increased bearish sentiment for the stock today, investors should understand that the initial short note from Hindenburg Research may be biased. As a short-seller, Hindenburg stands to profit when stocks that it has bet against lose value.
Thus far, there has also been no confirmation that the DOJ is investigating Supermicro — and it’s still unclear whether the core points in Hindenburg’s report are valid. Given that the DOJ has recently been taking a tougher stance against big tech companies, it wouldn’t be shocking if the early stages of an investigation were underway. But that wouldn’t necessarily mean that the server specialist has done something wrong.
While there has been a substantial uptick in uncertainty surrounding the company over the last few months, investors should keep in mind that key details are still missing.
Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
