Super Micro Computer shares continue to run wild as investors weigh AI hype against alleged DOJ probe

Shares of Super Micro Computer ( SMCI ) fell 2.5% on Thursday after rising as much as 9% a day earlier, continuing a week-long rally as investors vacillate between optimism over the company’s strong financials and prudence to its regulatory risks.

Super Micro is under investigation by the Justice Department over allegations of shady business practices laid out in a scathing report by short-selling firm Hindenburg Research in late August. That pressured the stock, which has since hovered below $50 a share.

This week, SMCI climbed on positive reports from the AI ​​server maker. Super Micro jumped 16% on Monday after the company released figures showing strong demand for its products. Shares rose 12% on Thursday from the previous week.

Super Micro makes servers using Nvidia’s (NVDA) AI chips for data centers that power artificial intelligence software. The company said it ships servers containing more than 100,000 Nvidia GPUs per quarter “for some of the largest AI factories ever built.”

Then on Tuesday, SMCI shares fell 5% after a promising pre-market rally that saw shares climb as much as 7%. Daniel Newman, CEO of Futurum Group, said investor euphoria over the company’s shipment data had faded amid Super Micro’s regulatory risk.

“I think good news hardly cancels out several months of significant financial and regulatory scrutiny around a company like this,” Newman said.

The Hindenburg Report in August accused Super Micro of poor accounting, undisclosed relationships between its CEO and companies it does business with, and violating U.S. export bans. For example, Hindenburg said Super Micro supplied servers to sanctioned Russian firms through shell companies, some of which were likely used by his military for the war against Ukraine.

The day after Hindenburg released his report, Super Micro shares fell 20 percent. The company also delayed filing its annual 10-K report with the US Securities and Exchange Commission. Super Micro’s woes continued with a report in the Wall Street Journal about an alleged DOJ investigation that sent shares tumbling in late September.

Super Micro CEO Charles Liang said the Hindenburg report contained “false or inaccurate statements” and “misrepresentations of information we have previously shared publicly.” Liang said the company’s late 10-K filing will not affect the company’s fourth-quarter financial results, adding that Super Micro will address Hindenburg’s allegations “in due course.”

The rise in Super Micro’s stock this week shows the tension between its potential as a key player in the AI ​​boom and its regulatory hurdles.

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“This is a high-risk reward,” Newman said. “If they’re cleared of all that, there’s a very good chance they’ll see a pretty nice move up.” Of the Wall Street analysts tracked by Bloomberg who cover the stock, seven have a buy rating on the stock, while 11 maintain a hold rating. Only one analyst recommends selling the stock.

Analysts see the stock rising to $66 in the next 12 months.

The company reported mixed results in its latest earnings report. Super Micro’s most recent quarterly revenue of $5.3 billion for the three months ended June 30 barely missed Wall Street expectations, but was 143 percent higher than a year earlier. On the other hand, Super Micro’s earnings per share for the company’s fiscal fourth quarter of $0.63 were well short of analysts’ consensus forecast of $0.83, according to Bloomberg data.

Argus Research analyst Jim Kelleher told investors in an Oct. 3 note to buy the dip, noting that Super Micro “has grown sales and earnings much faster than the tech industry in recent years.” Wall Street expects Super Micro to report revenue of $6.5 billion for the period ended Sept. 30, up 206 percent from a year earlier. The company has yet to confirm a date for its next earnings release.

“At this point, we assume that any accounting irregularities, if any, are minor and can be resolved while reissued financial documents are needed,” Kelleher said, adding that Super Micro’s recent 10-for-1 stock split on Oct. 1 “it widens the pool of potential investors and should be a long-term positive.”

Despite his long-term optimism, Kelleher cut his 12-month price target for the stock from $100 to $70.

Laura Bratton is a reporter for Yahoo Finance.

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