Shares of Super Micro Computer, Inc. (SMCI) continued their downward trajectory on Thursday, plummeting over 10% after Rosenblatt analyst Hans Mosesmann suspended his rating on the artificial intelligence server company. The analyst’s decision was fueled by concerns regarding governance and accounting practices, particularly in the wake of Ernst & Young’s resignation as the company’s auditor.
Ernst & Young’s departure on October 24th stemmed from concerns about the completeness and transparency of Super Micro’s communication with the accounting firm, as well as issues related to internal controls of financial reporting. While Super Micro is actively seeking a new auditor and insists they do not anticipate restating any previous financials, the news has sent shockwaves through the market.
The company’s management has also appointed a Special Committee to conduct a comprehensive review of its internal controls. However, management’s disagreement with Ernst & Young’s decision to resign before the review’s completion has fueled speculation about the company’s financial practices.
Adding to the growing list of concerns, Hindenburg Research published a short report in August alleging accounting manipulation, self-dealing with related parties, and sanctions evasion by Super Micro. This report, based on litigation records, company documents, and interviews with former senior employees, further heightened investor skepticism.
Analyst Jim Kelleher of Argus Research echoed these concerns, downgrading Super Micro from Buy to Hold on Thursday. Mosesmann, meanwhile, has suspended his rating, price target, and estimates until a clear picture emerges and allows for a definitive recommendation. Investors are expected to seek further clarification from Super Micro’s management during their first-quarter fiscal 2025 earnings call, scheduled for November 5th.
The market’s reaction to the news underlines the sensitivity of investor sentiment to accounting issues and auditor resignations. The coming weeks will be crucial in determining Super Micro’s ability to regain investor trust and restore confidence in its financial transparency.
