Server maker Super Micro Computer stock (NASDAQ: SMCI) surged by over 20% in pre-market trading on Wednesday, after the company filed its delayed 10-K filing for FY’24 just ahead of a deadline on Tuesday. The company also filed its quarterly reports for Q1 and Q2 2025. With this, the company should regain compliance and avoid being delisted by the Nasdaq exchange, reducing a major overhang that had weighed on Super Micro’s stock over the last several months. For perspective, Super Micro experienced considerable volatility in 2024, surging to over $114 per share earlier in the year before crashing by over 80% at one point due to multiple questions relating to its accounting, corporate governance, and delayed filing of its financial results. With the filings out of the way and the AI server market appearing strong, is Super Micro stock now in the clear? Sure, the company’s core business appears to have a strong outlook, but we believe that its weak corporate governance track record should still give investors pause. Here’s a closer look at the accounting issues that have impacted SMCI stock in the past.
Fundamentals Are Picking Up
While the company expects a mixed FY’25 (ending June ’25) its revenue guidance for the next fiscal year (ending June 2026) was much stronger than expected, coming in at about $40 billion, which marks an increase of as much as 70% compared to FY’25. Moreover, the company’s CEO indicated that this guidance may even prove conservative. The growth will likely be driven by continued investments into AI servers, with Nvidia slated to ramp up production of its latest Blackwell GPUs which could in turn scale up demand for SMCI’s servers which are used to deploy the latest GPUs. SMCI has also been focusing on gaining market share in the direct-liquid-cooled (DLC) server space. DLC is well suited for cooling servers running energy-intensive AI workloads and the technology is expected to be used in over 30% of new data centers in the next year. This is also helping to boost Super Micro’s presence in the AI server space. Apart from this, Super Micro has apparently priced its AI servers at a discount compared to its rivals helping it gain share in the market, although this is impacting gross margins to an extent.
SMCI is one of a handful of stocks that have increased their value in each of the last 4 years, but that still wasn’t enough for it to consistently beat the market. Returns for the stock were 39% in 2021, 87% in 2022, 246% in 2023, and 7% in 2024. The Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, is considerably less volatile. And it has comfortably outperformed the S&P 500 over the last 4-year period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment around rate cuts and multiple wars, could SMCI face a similar situation as it did in 2024 and underperform the S&P over the next 12 months – or will it see a strong jump?
Stock Is Far From A Clear Buy
SMCI stock trades at just about 21x consensus 2025 earnings. This is not an expensive valuation, considering the company’s high growth rates and exposure to the hot AI server market. That said, investors need to be cautious about the company’s track record with governance as these issues could hinder its long-term ability to deliver shareholder value. SuperMicro has indicated in its filings that it identified material weaknesses in its internal controls citing IT issues, lack of documentation for manual journal entries, and insufficient staff segregation. The company’s CEO and his wife also have considerable dealings with family members and their businesses via Super Micro. Although these deals may be legal, the extent of family entanglements at Super Micro could create conflicts of interest, and signal weak corporate governance.
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