Super Micro stock (NASDAQ:SMCI)

Shares of Super Micro (NASDAQ:SMCI) declined by 2% early Tuesday after short-seller Hindenburg Research released a report alleging “accounting manipulation” and other problems. The report, which was based on a three-month investigation, caused a significant drop in premarket trading, with shares falling as much as 8%.

Financial Misconduct and Compliance Failures

Hindenburg Research’s investigation uncovered numerous serious issues, including red flags in accounting, undisclosed transactions with related parties, and shortcomings in export controls and sanctions compliance. The report also raised concerns about customer-related matters. Hindenburg Research disclosed its short position in Super Micro, further impacting the stock’s performance.

Super Micro’s Market Performance Amidst AI Boom

Super Micro, a leading manufacturer of data center servers and management software, has gained significant attention this year due to the AI boom. The company sources components from AI chip maker Nvidia, Inc. (NASDAQ:NVDA). Super Micro’s stock soared from $290 in early January to over $1200 by March. Despite a recent 50% decline from its March peak, the stock is still up 90% year-to-date. The company also announced a 10-for-1 stock split effective October 1.

Past Controversies and Ongoing Issues

The Hindenburg report highlighted that despite a $17.5 million settlement with the SEC in August 2020 for “widespread accounting violations,” Super Micro’s business practices reportedly did not improve. Senior executives who were removed during the scandal were reportedly rehired. The report also mentioned that pressure to meet sales quotas led to practices such as channel stuffing and shipping defective products around quarter-end, according to former employees and customers.

Future Outlook and Competitive Landscape

Hindenburg Research labeled Super Micro a “serial recidivist,” indicating persistent significant issues with accounting, governance, and compliance. The report suggests that the company’s product and service quality are being challenged by more credible competitors, potentially impacting its future market position.