A major analyst delivers a crushing blow after Super Micro’s share price crash

It was an important day for Charles Liang.

CEO of Super Micro Computer (SMCI) appeared on CNBC’s “Mad Money” on July 15 following news that the company, which specializes in high-end servers, would join the Nasdaq 100 in a week.

Related: Short seller reveals Super Micro stock in latest report

“It’s a great honor,” he told Jim Cramer, the show’s host. “We are very pleased to be a Nasdaq 100 company.”

“I think it’s important for people to understand that the growth you have is so high that sometimes you absolutely have to beat your profits to keep growing,” Cramer said, “which I fully support because most companies don’t grow like you do.”

The growth has been impressive indeed. Super Micro shares tripled (up 264%) in the first quarter alone and are nearly 76% higher than a year ago.

But then things started to unravel for the San Jose, California-based company.

Charles Liang, CEO of Super Micro Computer Inc., during the AMD Advancing AI event in San Jose, California, USA.

Bloomberg/Getty Images

The company’s fourth-quarter report earlier this month revealed some weaknesses in Super Micro’s profit story. Profit margins have been squeezed by supply chain constraints related to its liquid-cooling technology and growing competition from rivals such as Dell Technologies (della) and HP Enterprise (HPE) .

Then short seller Hindenburg Research published a scathing report on Super Micro, claiming to have found “egregious accounting red flags, evidence of undisclosed related party transactions, sanctions and export control failures, and customer problems.”

Analyst cuts price target for Super Micro

A day after the Hindenburg report was released, Super Micro said it would not file its annual report on SEC Form 10-K for the fiscal year ended June 30 on time and expected to file a late notice.

“SMCI is unable to file its Annual Report within the prescribed time period without unreasonable effort or expense,” the company said in an Aug. 28 statement. “Additional time is needed for SMCI’s management to complete its assessment of the design and operational effectiveness of its internal controls over financial reporting as of June 30, 2024.”

Related: Analysts Revise Super Micro Share Price Targets After Q4 Earnings

Super Micro did not immediately respond to a request for comment.

“When something like this happens, a lot of institutional owners can’t own it,” said TheStreet Pro’s Doug Kass. “Then after reading the short report on it from Hindenburg Research, many institutional owners should not want to own it. The company is not as sexy as it seems.”

Shares of Super Micro were up 1.2% at $448.21 at last check.

Kass said, “It’s a commodity, white-box server maker that still trades at a massive valuation.”

“But to break it down, and I might not have this right, if you add up all the ETFs alone, it looks like 80 percent of the stocks are held by retail,” he said. “Then there’s all the options and stuff on top of that, which is retail. That’s why the stock hasn’t fallen further and is still trading where it is, in my view.”

“Retail just doesn’t care, they don’t understand these things, they buy the current hype and not the future cash flow, the whole business,” Kass added. “Passive index funds just keep.”

And then Wells Fargo cut its price target on Super Micro to $375 from $650, while maintaining an equal weight rating on the stock.

It’s a brutal blow, and share price target cuts of this size are not common.

The investment firm said the stock came under significant pressure after the announcement of the delayed 10-K filing.

Wells Fargo noted the Hindenburg Research report. Given the uncertainty and concern over Super Micro’s revenue recognition and history, the firm lowered its price target for the stock.

Related: Veteran fund manager sees world of pain coming for stocks