Why super micro computer stock is falling today

Super Micro Computer (SMCI -12.59%) shares are hit hard in Thursday’s trading. The server specialist’s share price was down 10.8% at 2:45 PM ET. Shares fell as much as 18.6% earlier in the daily session and trading was temporarily halted due to high levels of volatility.

The Wall Street Journal published a report this morning stating that the US Department of Justice (DOJ) has begun an investigation into Supermicro. The reported investigation follows a report published by short seller Hindenburg Research alleging poor accounting practices and structural weaknesses in the business.

Supermicro shares face another bearish catalyst

According to the report, a San Francisco attorney from the city’s U.S. attorney’s office contacted people connected to Super Micro Computer to gather information about the company. The report’s authors suggest the investigations appear to be related to allegations of accounting violations by a former employee.

The news that the DOJ may be investigating the company follows a report published by Hindenburg Research in late August, which claimed to have uncovered new evidence of accounting manipulation by Supermicro. The company previously paid a $17.5 million fine to the Securities and Exchange Commission (SEC) following allegations that it prematurely recorded revenue and understated expenses. In addition to raising the accounting concerns, Hindenburg also stated that Supermicro’s core business was significantly flawed and lacked significant competitive differentiation.

Has the bearishness for Super Micro Computer stock become overdone?

While the report suggesting that Supermicro is under investigation by the DOJ is understandably driving bearish sentiment for the stock today, investors should understand that the initial short note from Hindenburg Research may be biased. As a short seller, Hindenburg can profit when the stocks he bet against lose value.

So far, there’s been no confirmation that the DOJ is investigating Supermicro — and it’s still unclear whether the basic points in Hindenburg’s report are valid. With the DOJ recently taking a tougher stance against big tech companies, it wouldn’t be shocking if the early stages of an investigation were underway. But that wouldn’t necessarily mean that the server specialist did something wrong.

While there has been a substantial increase in uncertainty surrounding the company in recent months, investors should keep in mind that key details are still missing.