By By Deborah Mary Sophia and Aditya Soni
(Reuters) -AI server maker Super Micro Computer (NASDAQ:SMCI) delayed the filing of its annual report, citing a need to assess “its internal controls over financial reporting,” sending shares down 25% in heavy trading on Wednesday.
The delay comes one day after short-seller Hindenburg Research said it had taken a short position in the stock, alleging “accounting manipulation” at the company. Since peaking in mid-March, Super Micro shares have been in a downward spiral, losing nearly two-thirds of their value following a boom in AI stocks.
It was not immediately clear if Super Micro’s decision was related to the Hindenburg report. The company declined to comment beyond its statement on Wednesday when asked about Hindenburg’s allegations.
“It’s ‘shoot first, ask questions later,’” said Thomas Hayes, chairman and managing member at Great Hill Capital, of the market reaction. “A delayed filing is a red flag – especially in light of the allegations. Time will tell who is correct. But for now, investors seem to be assuming that if there is smoke, there may be fire too.”
Super Micro said on Wednesday it did not update results for the fiscal year and quarter ended June 30 that it announced earlier this month. The company posted a decline in quarterly margins due to increasing costs of server production and competitive pricing from rivals, including Dell (NYSE:DELL).
Super Micro was a big winner in the generative AI boom as businesses bet on the tech needed to power applications such as ChatGPT. The company’s value has surged since the beginning of 2023, rising from a valuation of roughly $4.4 billion to a March peak of $67 billion.
But the relentless rally in AI stocks has cooled since March, as investors realized the payoff on companies’ heavy investments would be slower than expected.
Hindenburg did not immediately respond to a request for comment on the delay.
The short seller on Tuesday pointed to evidence of undisclosed related-party transactions, failure to abide by export controls, among other issues. Hindenburg said it had conducted a three-month investigation that included interviews with former senior employees and litigation records.
A Reuters review of tender documents earlier this year showed Chinese entities acquired high-end Nvidia (NASDAQ:NVDA) chips embedded in server products made by several companies including Super Micro through resellers, despite the U.S. government’s crackdown on the sale of such technology to China.
Super Micro’s shares were down $148.65 to $399 on Wednesday, with more than 24 million shares changing hands, far exceeding the average of 7.3 million shares over the past 50 days, according to LSEG data.
In a note Tuesday, J.P. Morgan analysts said the Hindenburg report had “limited details” of accounting manipulation but highlighted known areas of governance and transparency improvements.
“We see the report as largely void of details around alleged wrongdoings from the company that change the medium-term outlook, and largely revisiting the already known areas for improvement in relation to corporate governance and transparency.”
Super Micro is the latest target of the short seller that has tussled with billionaire investor Carl Icahn and India’s Gautam Adani.
Super Micro was charged by the U.S. securities regulator in 2020 of prematurely recognizing revenue and understating expenses. While the company did not admit or deny the SEC’s charges, it had agreed to pay a $17.5 million penalty.