Where will Super Micro Computer's (NASDAQ: SMCI) stock go? That's the big question investors are wondering these days, as there is so much controversy involving the business.
If you believe the company's servers will be in high demand by businesses involved in developing artificial intelligence (AI) models, it would be easy to think that the stock looks like it should soar in value in the years ahead. However, if you think the company's financials aren't reliable after its auditor resigned last year, then you might believe the worst could be yet to come for this struggling AI stock.
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There could be some important answers coming later this month, which is when the company faces a deadline to file its outstanding financial reports. The date that investors will want to circle on their calendars is Feb. 25.
Why this month is a big one for Super Micro
Super Micro has not filed a quarterly or annual report since June 2024, when it posted its results for the first three months of that year. It's behind on both its fiscal-year-end report for the period ending June 30, 2024, as well as its quarterly report for the period ending Sept. 30, 2024.
The Nasdaq Stock Market has given the company a deadline of Feb. 25 to file its late reports. If it doesn't, Super Micro faces the risk of getting delisted from the exchange, which would almost certainly lead to a massive sell-off. While it could still trade on an over-the-counter exchange, many investors wouldn't be able to or want to hold the stock anymore, and trading volumes would decline heavily.
What Super Micro investors should watch for
If the company gets its reports filed by the due date, then the key question is whether there are any big adjustments made to already reported numbers. Its previous auditors, Ernst & Young, resigned because of concerns over the company's internal controls and were so alarmed they did not want to be associated with the financial statements management prepared.
The new auditor, BDO, has not given any indication as to the state of Super Micro's financials and how reliable the numbers and controls are, which will play a key role in determining whether the stock can win back investors. If there are material adjustments that need to be made, that could be problematic as the company has already been struggling with low gross margin. If it needs to reduce revenue or add costs, that would hurt its level of profitability.
In early November, the company said an independent special committee had completed its review and reiterated that the company "does not anticipate any restatements of its quarterly reports for the fiscal year 2024 ended June 30, 2024, or for prior fiscal years."
Ultimately, there are quite a few ways this month could go badly for Super Micro -- by not filing its financials on time or by filing them with significant adjustments. Winning over investors may not come easily, especially at a time when concerns are high that tech companies may be overspending on AI amid the news that Chinese company DeepSeek created an AI model that can rival ChatGPT at just a fraction of the cost.
Supermicro is also planning to provide a second-quarter fiscal 2025 business update on Feb. 11, so investors will want to watch that.
Is Super Micro stock a buy before Feb. 25?
In just the past six months, Super Micro has lost more than half of its valuation. But while the stock is trading near its 52-week low, investors shouldn't rush to buy it right now as there could still be a lot more pain ahead for those who decide to hang on amid so much uncertainty.
There will be a lot of financial information for investors to review, assuming that Super Micro gets its financials released on time; simply filing the reports on time may not be enough of a reason to buy the stock. Given the risk involved with the business of late, investors will want to take their time in analyzing Super Micro's updated financials before making a decision on what's become a highly volatile stock.
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David Jagielski has no position in any of the stocks mentioned. The Motley Fool recommends Nasdaq. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
