Super Micro’s $50 billion stock plunge highlights risks of artificial intelligence hype | Real Time Headlines

March, super microcomputer was additional The stock is up more than 2,000% in two years after an epic run that dwarfed even the stock. NVIDIA income.

As it turns out, the S&P has peaked.

Less than two weeks after the index adjustment was announced, Super Micro reached a closing high of $118.81, with a market value of nearly $70 billion. The stock has since fallen 72%, taking its valuation to below $20 billion, the first big sign in the public markets that the hype surrounding artificial intelligence may not be entirely justified.

Super Micro is one of the leading suppliers of building peripherals NVIDIAServer cluster for training and deploying artificial intelligence models.

stock Plunged 33% On Wednesday, the company disclosed that its auditor, Ernst & Young, had resigned, saying it “wanted no association whatsoever” with the financial statements prepared by management. AMD is currently at risk of being delisted from Nasdaq and must regain compliance with the stock exchange’s rules by November 16.

“We believe delisting risks would be higher without an auditor, with potential challenges in hiring a new auditor,” Mizuho Bank analysts wrote in a note on Wednesday. The stock is rated equivalent to Hold.

Ernst & Young is new to the job; Just replaced Deloitte & Touche will serve as Super Micro’s accounting firm in March 2023.

An AMD spokesperson told CNBC in a statement that the company “disagrees with Ernst & Young’s decision to resign and we are working to select a new auditor.”

Representatives for EY and Deloitte did not respond to requests for comment.

For most of AMD’s three decades in business, the company has flown under the radar, slowly growing as a relatively unknown Silicon Valley data center company.

This all changed in late 2022 when OpenAI launched ChatGPT, triggering a historic wave of investment in AI processors (mainly provided by Nvidia). together with DellSuper Micro has been one of the big winners from Nvidia’s boom, packing powerful graphics processing units (GPUs) into custom servers.

Although Supermicro has not filed a formal financial disclosure with the SEC since May, revenue has at least doubled over the past three quarters.

Wall Street’s attitude toward the company has changed dramatically.

Super Micro’s shares have fallen by at least 10% six times since S&P announced the index changes in March. The most worrisome slide before Wednesday occurred on Aug. 28, when the stock down 19% Super Micro said it would not file its annual report with the U.S. Securities and Exchange Commission on time.

“SMCI management requires additional time to complete its evaluation of the design and operating effectiveness of its internal control over financial reporting as of June 30, 2024,” the company said.

Prominent short seller Hindenburg Research later disclosed the company’s short position, saying in a report that it had found “new evidence of accounting manipulation.”

The next month, Chaowei said The company had received notice from Nasdaq and said the delay in filing its annual report meant it was not in compliance with the exchange’s listing rules. Super Micro said Nasdaq’s rules allow the company 60 days to file a report or submit a plan to return to compliance. According to that timeline, the deadline is mid-November.

This isn’t Supermicro’s first time. The company is Previously delisted Listed on Nasdaq in 2018.

Wedbush analysts think there’s reason to worry.

“Since SMCI missed the deadline to submit its 10K application and SMCI has a tight timeline to resolve this issue, we view this development as a significant obstacle to SMCI’s timely submission to avoid delisting,” the analysts said, writing in the report. Tao recommends holding the stock.

As Super Micro’s stock was in the midst of its worst selloff since 2018 on Wednesday, the company issued a Press release announced that it will “provide a business update for the first quarter of fiscal 2025” on Tuesday, November 5.

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An AMD spokesman told CNBC that the company does not expect the issues raised by Ernst & Young to “result in any restatement of its quarterly financial results for the fiscal year ended June 30, 2004 or prior fiscal years.”

Beyond AMD, evolving events could also hit S&P Dow Jones hard. Since supermicro replaced swirl Shares of the appliance company were down about 3% in the S&P 500, underperforming the broader market but faring much better than the stocks that took its place.

Inclusion in the S&P 500 generally causes stocks to rise because managers of funds tracking the index must buy shares to reflect the change. This means pensions and superannuation funds have greater exposure to members of the index. Super Micro Soared 19% March 4 is the first trading day after the announcement.

An S&P Global spokesman said the company does not comment on individual constituents or index changes, pointing to its general rules methodology document. The main requirements for inclusion are positive GAAP earnings for the last four quarters and a market capitalization of at least $18 billion.

S&P can make unplanned changes to its indexes at any time “in response to corporate actions and market developments.”

Kevin Barry, chief investment officer at Cantata Wealth, said more consideration should be given to the volatility of stocks when making additions to such a closely watched index, especially given that technology stocks already account for 30% of its weighting about.

“The potential for stocks to go up 10 or 20 times in a year or two and then have indigestion is very high,” said Barry, co-founder of Cantata this year. “You’re moving from that when tech already represents by far the largest sector in the index. Low volatility stocks move into high volatility stocks.”

—CNBC’s Rohan Goswami and Kif Leswing contributed to this report

watch: Super Micro Stock Is a ‘Very Dangerous Buy’