Super Micro Computer shares fell more than 12% on Thursday after the Justice Department reportedly opened a probe into the company, which has been a major beneficiary of the artificial intelligence boom. The probe is in its early days, according to a report from The Wall Street Journal, and it comes after Hindenburg Research disclosed a short position in the company in late August. Hindenburg said it identified "fresh evidence of accounting manipulation," according to its report. CNBC could not independently verify Hindenburg's claims.
The investigation appears to be connected to a whistleblower lawsuit filed in April by Bob Luong, a former employee, who accused Super Micro of accounting violations. According to the Wall Street Journal, Luong's lawsuit alleges that the company improperly recognized revenue from 2020 to 2022, including booking sales that had not been completed and shipping incomplete equipment to customers. In addition, the lawsuit alleges that the company made numerous undisclosed transactions with companies owned by its CEO, Charles Liang's family.
Super Micro makes computers that companies use as servers for websites, data storage and other applications, including AI algorithms. The company's customers include major players in AI such as Nvidia, AMD and Intel. The company's stock had surged during the AI boom, peaking at $66 billion in value earlier this year, but it has since plummeted after Hindenburg's report, which also highlighted shipments to Russian companies in violation of U.S. sanctions.
Following Hindenburg's report in August, Super Micro said it would not file its annual report for the fiscal year with the U.S. Securities and Exchange Commission on time, sending shares tumbling nearly 20%. It is not clear if the delay was related to the firm's report. In a letter to customers on September 3, Liang defended the company, calling the allegations in the short-seller report “false or inaccurate.” Super Micro has also requested that Luong’s lawsuit be moved to arbitration, with a court hearing scheduled soon.
The DOJ's Investigation
A prosecutor in the U.S. attorney's office in San Francisco has asked for information about a former employee who has previously accused Super Micro of accounting violations, according to the Journal. This request for information further intensifies the scrutiny on the company's financial practices.
Impact on Super Micro
The DOJ probe and the subsequent decline in stock price are significant blows to Super Micro. The company, which is a major supplier of AI servers, is now facing an uphill battle to regain investor confidence. The investigation could also damage Super Micro's reputation and hinder its ability to secure future contracts.
Implications for the Tech Industry
The investigation into Super Micro serves as a reminder of the importance of ethical business practices in the tech industry. With the rapid growth of AI and the increasing reliance on data, transparency and accountability are more crucial than ever. This case may also lead to a greater focus on due diligence and scrutiny of the financial reporting of tech companies.
The Future of Super Micro
It remains to be seen how the DOJ investigation will unfold and what impact it will have on Super Micro's future. The company's response to the allegations and the outcome of the investigation will be closely watched by investors and industry observers alike.
The Bottom Line
The DOJ investigation into Super Micro is a major development in the tech industry. The probe highlights the growing concern about accounting irregularities in the AI sector and the potential for fraud. The outcome of the investigation could have significant implications for Super Micro, the broader tech industry, and the future of AI development.
