Should you load up on super micro computer stock while it’s down 60% from its all-time high?

Super Micro Computer (SMCI -2.10%) has been one of the best performing stocks this year, even outperforming Nvidia. However, it fell on hard times after a poorly received earnings report and a short seller announcement. The stock now sits more than 60% off its all-time highs after a combination of these two factors and the general sell-off due to extreme valuation.

With the stock now at this low point, many investors (myself included) may wonder if the stock could be a steal at these levels. Let’s take a look, because there’s a lot to be excited and worried about.

Supermicro products are in high demand

Super Micro Computer (often called Supermicro) provides components needed to build large-scale data centers and servers. Due to the high demand for extreme computing power to train artificial intelligence (AI) models, Supermicro is seeing a similar increase in demand as Nvidia for its products.

This space is quite commercialized as there is not much to differentiate between providers. But Supermicro’s highly customizable server products set it apart from the competition. Additionally, the company’s architecture is the most energy-efficient offering available. This is critical because the energy costs are incredibly high for these servers.

Supermicro’s business exploded as demand for AI computing grew. In the fourth quarter of fiscal year (FY) 2024 (ended June 30), its revenue rose 143% year over year to $5.3 billion. It also indicated revenue of $26 billion to $30 billion for fiscal year 2025, indicating growth of 74% to 101%. However, its gross margin has fallen significantly as its product mix becomes more heavily programmed towards its new liquid cooling technology.

SMCI gross profit margin data (quarterly) by YCharts.

Management expects its gross margin to improve throughout 2025 and beyond due to the relocation of manufacturing facilities, but expects this short-term headwind to put a lot of pressure on its profit margin. This is it if Supermicro’s accounting is accurate as there are recent allegations of concerns about its internal controls.

Are there legitimate question marks associated with Supermicro’s accounting practices?

Supermicro also announced that it will file its year-end Form 10-K with the Securities and Exchange Commission (SEC) late due to management’s assessment of internal controls over financial reporting. This announcement came around the same time that noted short seller Hindenburg Research announced its short position in the company.

While Hindenburg’s announcement included several reasons why he believes the company is involved in some level of impropriety, he mainly argues that Supermicro’s quarter-end accounting techniques make it appear that the company is doing better than it is in reality. Of course, Hindenburg is a motivated short seller, and the validity of his claims remains to be proven.

Additionally, in 2018, Supermicro was temporarily delisted from the Nasdaq stock market for failing to file financial statements on time. The SEC fined the company in 2020 for improper accounting. While some lost their jobs because of it, Hindenburg claims those people were rehired within three months of paying the fines.

Almost all investor actions are based on the financial statements that the company reports. If this information is not reliable, it is almost impossible to adequately value the stock.

The report sent shares down nearly 30%, indicating that most investors wanted nothing to do with it.

But is this a legitimate reaction? While there are probably some accounting issues at Supermicro, there is also a real demand for its products and services. While this may affect revenue by a few percentage points, it is unlikely to amount to billions of dollars. Additionally, the stock trades for just 13 times forward earnings after the sale.

SMCI PE Ratio data (before) by YCharts. PE ratio = price-earnings ratio.

It’s very cheap for a company that is benefiting from the massive wave of AI demand.

So what should investors do? I think investors should be patient before taking a large position in stocks. There are a lot of unknowns right now and it’s too early to tell how the stock will react. However, taking a small position (say less than 1% of the total weight of the portfolio) may not be a bad idea as there are a lot of advantages here. And if Supermicro drops further, it won’t affect the overall portfolio too much.

Supermicro is still a company with huge demand for its product, but some of the allegations relate to its finances and internal controls. So only time will tell.