Shares of server maker Super Micro Computer (SMCI) have plunged 15% on news that the U.S. Justice Department (DOJ) has opened a probe into the company. The Wall Street Journal was the first to report on the investigation, which is in its early stages. A prosecutor in the U.S. attorney’s office has requested information from Super Micro Computer about a former employee who had previously accused the company of accounting violations.
News of the Justice Department probe comes weeks after notorious short seller Hindenburg Research published a critical report on Super Micro Computer, accusing the company of “accounting manipulation.” Days after the Hindenburg Research report was made public, Super Micro Computer delayed the publication of its annual report with the U.S. Securities and Exchange Commission (SEC), Wall Street’s regulator.
The critical report from Hindenburg Research and delayed annual report have pressured SMCI stock, sending the company’s share price down nearly 30% in the last month. Year-to-date, the company’s share price is still up 42%. However, it has come down substantially from earlier in the year when it was the top gainer in the benchmark S&P 500 index and outperforming high-flying chipmaker Nvidia (NVDA).
The U.S. Justice Department has not commented publicly on any probe or investigation related to Super Micro Computer. SMCI makes servers for websites, data storage and other applications, including artificial intelligence, that are used by companies such as Nvidia.
Super Micro Computer's Financial Performance
Super Micro Computer’s stock has a consensus Hold rating from 13 Wall Street analysts. This rating is based on two Buy, 10 Hold and one Sell ratings issued in the last three months. The average price target of $613.92 implies 52.55% upside potential from current levels.
The Investigation's Potential Impact
The DOJ investigation is a significant development for Super Micro Computer. The company has already been under pressure from the Hindenburg Research report and the delayed annual report. The DOJ investigation could further damage the company’s reputation and lead to fines or other penalties.
What Investors Should Do
Investors should be aware of the risks associated with investing in Super Micro Computer. The DOJ investigation is a major uncertainty, and it is unclear how it will ultimately play out. Investors should carefully consider their risk tolerance before investing in the company.
Super Micro Computer's Response
Super Micro Computer has not yet commented publicly on the DOJ investigation. However, in a letter to customers on Sept. 3, CEO Charles Liang addressed both the scathing Hindenburg report and Super Micro's delayed filing, stating, “Neither of these events affects our products or our ability and capacity to deliver the innovative IT solutions that you rely on every day. Our production capabilities are unaffected and continue operating at pace to meet customer demand.”
The Future of Super Micro Computer
The DOJ investigation is a major challenge for Super Micro Computer. However, the company has a strong track record and is a leader in the AI server market. It remains to be seen how the investigation will affect the company’s long-term prospects.
The Importance of Due Diligence
The Super Micro Computer situation highlights the importance of due diligence when investing in stocks. Investors should always do their research and understand the risks before investing. They should also be aware of any potential red flags, such as allegations of accounting fraud or other misconduct.
Investor Considerations
Investors should be aware that the DOJ investigation is still in its early stages. It is possible that the investigation will not result in any charges against Super Micro Computer. However, even if the investigation does not lead to charges, it could still damage the company's reputation and lead to a decline in its stock price.
Conclusion
Investors should exercise caution when investing in Super Micro Computer. The DOJ investigation is a major risk factor, and it is unclear how it will ultimately play out. Investors should carefully consider their risk tolerance before investing in the company. The situation also underscores the importance of doing thorough due diligence before investing in any company.
