When market watchers think of AI servers during the AI boom of the past nearly two years, they think of NVIDIA (NASDAQ:) and Super Micro Computer (NASDAQ:). The two are tied at the waist. NVIDIA makes the AI chips and Super Micro makes the AI servers. Since ChatGPT took the world by storm on November 30, 2022, and the AI race began, NVIDIA stock is up an incredible 760%, and Super Micro stock is up over 1200% at its peak. One company is currently embroiled in an accounting scandal, and another is trying to distance itself from the situation.
On August 27, 2024, Hindenburg Research, a research firm specializing in short selling, released a scathing report on Supermicro, alleging corporate malice, channel stuffing, related party transactions, product sales to bad actors such as Russia, and adulteration. He insisted on manufacturing. Hindenburg said Supermicro rehired some of the same executives who were indicted when the company was hit with an SEC accounting violation in 2020 that was subsequently settled. Additionally, related party questions have been raised regarding suppliers Ablecom and Compuware. CEO Charles Liang’s brother runs two suppliers, and Liang and his wife own part of Ablecom. Hindenburg said Supermicro’s exports of high-tech components to Russia have tripled since Russia’s invasion of Ukraine in February 2022. Meanwhile, competitors such as Dell (NYSE:) are winning orders because of concerns about SuperMicro’s quality.
The initial shock of the Hindenburg report in late August caused Supermicro’s stock to immediately drop 19%, but things have only gotten worse.
First, just a day after the Hindenburg report, the company postponed its 10-K filing for fiscal year 2024, which later led to the Nasdaq stock exchange sending it a noncompliance letter warning of possible delisting. . But the situation worsened this week with the resignation of Supermicro’s auditor, Ernst & Young, adding fuel to the fire of corporate malice. In late July 2024, the accounting firm “expressed concerns about a number of matters relating to governance, the transparency and completeness of communications to EY, and other matters relating to the Company’s internal control over financial reporting…” Additional information received from the firm “raised questions,” including whether the company has demonstrated a commitment to integrity and ethical values in accordance with Principle 1 of the COSO Framework; The whole includes the CEO and the ability and willingness to act as a supervisory body independent of the CEO. Whether other management members and EY can rely on representations from certain management members and the audit committee in accordance with Principle 2 of the COSO Framework. ” The accounting firm stated the following in its resignation letter: “We are resigning due to information recently brought to our attention that we can no longer rely on, and are no longer willing to rely on, the representations of management and the audit committee. and after reaching this conclusion, we are no longer able to provide audit services in accordance with applicable law or professional obligation. ”
Supermicro’s stock price fell another 43% this week following the auditor’s resignation. The stock is now down 50% from the Hindenburg Short-Term Report and 77% from its March 2024 high.
Meanwhile, NVIDIA remained largely unfazed by the Super Micro situation until cracks began to appear this week following the resignation of its auditor. Since Supermicro’s auditor resigned, Nvidia’s stock price has fallen nearly 4%, including a 4.7% drop on Thursday.
Wall Street analysts are now questioning whether NVIDIA can separate itself from the Supermicro situation.
Jordan Klein, an analyst at Mizuho Desk, believes Nvidia risks missing out on its own guidance if Supermicro’s situation worsens and it is unable to fund its business. He said Super Micro was operating on negative working capital and needed large amounts of cash and financing to purchase large quantities of GPUs and liquid cooling products to build the multi-million dollar NVL72 Blackwell rack system. I emphasized one thing. “If you don’t have an auditor or can’t submit financial statements, how do you raise money?” Klein asks about Supermicro.
Analysts believe that NVIDIA will likely start moving the majority of its GPU supply away from Super Micro until the situation becomes clearer. The analyst emphasized that if NVIDIA shifts its supply away from Super Micro, Super Micro’s competitor Dell could be the beneficiary.
Although shifting GPU supply away from Super Micro seems like a reasonable medium-term solution for NVIDIA, the potential for short-term disruption and payment delays from Super Micro could affect NVIDIA’s short-term financial results. It is unknown whether it will affect
Despite Super Micro’s woes, overall AI demand and the race to artificial general intelligence doesn’t seem to be slowing down, with NVIDIA still expected to capture the lion’s share. For example, BofA Securities predicts that demand for AI accelerators will grow to $280 billion by 2027 and more than $400 billion over the long term, and despite increased competition, Nvidia has a 75% share of the market. % earned.
NVIDIA has not commented on the Super Micro issue.
When asked by Investing.com for comment on Super Micro, an NVIDIA spokesperson said, “We decline to comment.”
Despite not speaking publicly about the Super Micro situation, management’s actions indicate that NVIDIA is quietly distancing itself from Super Micro. As Hindenburg noted, in May 2024, NVIDIA CEO Jensen Huang publicly supported Super Micro’s competitor Dell. “No one is better than Dell at building very large end-to-end systems for enterprises,” said Huang.
It remains to be seen whether the Super Micro fiasco will impact NVIDIA, but the auditor’s situation has increased the risk and may raise questions from customers. Now, so do investors.
