Super Micro Computer shares slid 10% on Tuesday. This ended a recent rally for the server company. SMCI has been working to restore its reputation.
The company faced allegations of accounting irregularities. Last week, BDO USA was announced as the new auditor for SMCI. This filled the gap left by Ernst & Young’s departure.
SMCI also submitted a compliance plan to NASDAQ. The plan aims to fulfill listing requirements. It also aims to maintain SMCI’s position on the exchange.
However, doubts remain about the rally’s durability. Investor Johnny Zhang expressed skepticism. “Many uncertainties still remain, including the timeline for completing its filings,” Zhang said.
He also noted “the risk of downward revenue revisions due to potential order reductions by major customers.”
Zhang is worried that bad press has caused SMCI’s clients to lose faith. This includes industry leader Nvidia. A recent report claimed Nvidia is branching away from SMCI.
Super Micro faces ongoing uncertainties
The goal is to reduce potential supply disruptions. Loss of orders would hit SMCI’s accounting, Zhang points out.
Accumulating inventories could lead to impairment losses. It could also lead to increased pricing pressure that would lower profit margins. Zhang believes the recent rally was driven by short sellers covering positions.
It was not caused by long-term investor confidence in SMCI’s prospects. Zhang is taking a wait-and-see approach. He is monitoring future earnings reports and management updates.
Zhang advises investors to consider locking in gains while they can. He emphasizes the risks of holding amid ongoing uncertainties. “For those who bought the dip and have seen a decent return, it may be wise to take profits,” Zhang said.
He assigned a Sell rating to SMCI. Wall Street’s outlook for SMCI is divided. The stock has a Hold rating based on analyst recommendations.
Analysts project an average price target of $39.43. This implies a 14.5% upside potential from current levels.
