Super Micro Computer Dropped Today — Should You Buy AI Shares Ahead of the October 1st Stock Split?

Super Micro Computer (SMCI -12.17%) the stock was crushed today following a report that the company is under investigation by the Department of Justice (DoJ). The server specialist’s share price ended the day down 12.2% and fell as much as 18.6% earlier in the session.

The Wall Street Journal reported today that the DoJ is in the early stages of conducting an investigation into Supermicro. According to the report, the investigation is likely related to allegations of poor accounting practices that were made in a short seller note published by Hindenburg Research in late August.

Following today’s big selloff, Supermicro stock is now down 66% from its high earlier this year. Despite the downgrade, the company is still on track to proceed with a 10-for-1 stock split that will take effect on October 1.

Is Supermicro a pre-split buy?

Supermicro has been hit by some intense bear pressure lately, but the negative sentiment surrounding the stock may have become overblown. For starters, the DoJ has yet to announce a formal investigation into the company. Even if an investigation were to take place, that would not necessarily mean that any impropriety actually occurred.

The Justice Department has generally applied more scrutiny to large technology and financial companies recently, after launching antitrust lawsuits against companies including Apple, Alphabetand Visa. Supermicro is unlikely to face antitrust scrutiny, but the recent spike in DoJ activity provides some background context worth remembering.

If an investigation of Supermicro by the DoJ is underway, Hindenburg’s allegations of finding evidence of new accounting violations by the tech company could have been a key catalyst. But it’s important to note that Hindenburg is a short seller and takes advantage when valuations for the companies he has placed bets against decline.

SMCI PE Ratio data (before) by YCharts

The lack of visibility into the company’s outlook means that Super Micro Computer stock will not be suitable for investors without an above-average risk tolerance. On the other hand, investors who are willing to accept risk and uncertainty could end up making big profits by treating the recent selloff as a buying opportunity.

Following today’s stock pullback, Supermicro now trades at just 12 times this year’s expected earnings and less than 85% of expected sales. Even with expectations that the business will moderate cyclically, that’s a cheap valuation for a company that has seen stellar sales and earnings growth thanks to artificial intelligence (AI)-driven demand. If the tech major scores wins with the liquid-cooling technologies that help differentiate high-performance rack servers, Supermicro stock could move past its recent controversies and bounce back.