Earlier this year, Super Micro Computer (SMCI -11.41%) reigned with Nvidia It is among the best performing stocks in the market. Supermicro increased by 188% in the first half, while Nvidia increased by 149%.

Why is this 30-year-old company suddenly thrust into the spotlight? The equipment maker, which provides items such as servers for artificial intelligence (AI) data centers, has seen its earnings soar amid the AI ​​boom.

But that growth story faded recently as problems at the company began to mount, all leading to a more than 60% decline in the stock since late August. A brief report alleged problems at Supermicro, a newspaper article mentioned a possible Justice Department investigation, and recently Supermicro auditor Ernst & Young resigned from the job.

At the same time, Supermicro has fallen behind on financial reporting and announced a few weeks ago that its annual 10-K report would be delayed. And just this week, the company said it wouldn’t be able to file its report for the quarter ending Sept. 30 on time. Have Supermicro’s problems gotten deeper?

Image source: Getty Images.

Hindenburg report

First, let’s give some detail about the various negatives, starting with the brief report published in late August. In the document, Hindenburg Research claimed there were several problems, including “glaring accounting red flags.” It is important to keep in mind that at the time the report was prepared, Hindenburg said: short position It’s on Supermicro, so it helps if the stock goes down. This bias makes it difficult for investors to trust Hindenburg as a source of information about the equipment manufacturer.

Wall StreetJournal It was later reported that an investigation into Supermicro had been launched by the Department of Justice. Both the U.S. attorney’s office and the company declined to comment.

He recently resigned from auditor Ernst & Young in July, saying he “did not want to be associated with financial statements prepared by management” after questioning the company’s internal controls. Supermicro’s board appointed an independent special committee to review the situation, and the committee recently said it “found no evidence of fraud or misconduct by management or the Board.” Although the committee has not formally completed its review, these remarks represent some good news for Supermicro and its shareholders.

Meanwhile, Supermicro notified the Securities and Exchange Commission (SEC) that it would be late in filing its report. 10-K annual reportA move that prompted Nasdaq to send the company a non-compliance letter. Supermicro now must submit or submit a plan to regain compliance by November 16. Non-compliance will ultimately result in delisting, which will certainly be bad news.

What happens if Supermicro is delisted?

Shares would be traded if Supermicro were delisted over the counter (OTC). In the OTC market, volume is lower and transaction costs are higher; This may negatively affect demand for the stock. Moreover, delisting will further undermine investors’ confidence in the company’s management.

Now let’s get to the latest news: Supermicro said this week that it will not be able to submit its quarterly report for the 10th quarter on time. This isn’t much of a surprise, since the company does not currently have an auditor and must hire one to review the financial statements included in the 10-Q. As Supermicro noted in its filing with the SEC, the 10-Q cannot be filed before the 10-K annual report.

Does this mean problems are deepening for Supermicro? Not necessarily.

As mentioned earlier, it was clear that without the auditor, Supermicro would remain inactive regarding financial reporting. So the company’s problems today are the same as when Ernst & Young resigned a few weeks ago.

What can help Supermicro?

What could help Supermicro from here in the near term is finding a new auditor so the company can move forward with reporting. Without this, it will be very difficult for Supermicro to continue attracting investors. After all, investors want to have a clear picture of a company’s financial health before buying into its stock. And without an auditor and therefore without the filing of financial reports, Supermicro Nasdaq delisting – another situation that will negatively affect the demand for the stock.

Although Supermicro has become a leader in the AI ​​equipment market and has a bright future ahead of it, all these elements add a lot of uncertainty to the story right now. The best thing you can do as an investor is to keep this player on your watch list (potentially for a while in the future when the situation improves) and watch this story safely from the sidelines.