TLDR:
- Super Micro Computer (SMCI) stock surged nearly 30% to $42 after special committee found no evidence of misconduct in accounting practices
- Ernst & Young had resigned as auditor in October, but committee concluded EY’s concerns were unsupported by facts
- Company is seeking new CFO and named Kenneth Cheung as chief accounting officer, while addressing Nasdaq listing compliance
- Investigation involved over 9,000 hours from independent counsel and 2,500 hours from forensic accounting team
- Despite positive findings, analysts remain cautious with JPMorgan maintaining underweight rating and Rosenblatt suspending coverage
Super Micro Computer (SMCI) saw its stock price jump nearly 30% to $42 on Monday after an independent committee investigation found no evidence of wrongdoing in the company’s accounting practices. The surge represents a dramatic turnaround for the server maker, which has faced intense scrutiny over its financial reporting.
The special committee’s investigation, which took over three months to complete, involved more than 9,000 hours of work by independent counsel and 2,500 hours by forensic accountants. The team interviewed 68 witnesses, including current and former employees, management, advisers, and board members.
The investigation was launched following allegations made by short-seller Hindenburg Research in August. Hindenburg had claimed to find accounting red flags, undisclosed related party transactions, and potential sanctions violations at the company.
These allegations gained additional weight in October when Ernst & Young, Super Micro’s auditor, resigned. EY stated they could no longer rely on management’s representations and couldn’t provide audit services in accordance with applicable law or professional obligations.
However, the special committee, led by independent director Susie Giordano, determined that EY’s resignation and conclusions “were not supported by the facts.” Giordano, who joined the board in August, brings over 25 years of corporate advisory experience, including 11 years at Intel.
The investigation employed more than 50 attorneys from Cooley, along with outside contract review attorneys and forensic accounting specialists from Secretariat. Their comprehensive review found no substantial concerns about the integrity of Super Micro’s senior management or Audit Committee.
In response to the findings, Super Micro has announced several organizational changes. The company is actively searching for a new CFO, though current CFO David Weigand will remain in his position until a successor is named. Additionally, Kenneth Cheung, previously vice president of finance and corporate controller, has been appointed as chief accounting officer.
The company faces ongoing challenges regarding its Nasdaq listing status due to delayed financial reports. However, Super Micro has expressed confidence in its ability to become current with its periodic reports and maintain its listing.
Trading activity showed strong institutional investor participation, with above-average volumes supporting the price increase. The stock has now more than doubled from its recent lows, though it remains well below its early-March peak.
Despite the positive findings, major investment firms have maintained a cautious stance. JPMorgan kept its underweight rating on the stock, citing the need for increased visibility into compliance matters. The firm identified two key areas to monitor: whether new auditor BDO accepts the committee’s findings or conducts its own review, and Nasdaq’s response to Super Micro’s compliance extension request.
Rosenblatt analysts acknowledged the committee’s findings but suspended their rating, price target, and estimates pending further clarity on the company’s financial situation. This reflects ongoing uncertainty in the market despite the investigation’s positive outcome.
The stock’s technical indicators show improving momentum, with the relative strength index (RSI) rising though still below 50. Key resistance levels to watch include $50, which coincides with the early-August trough and late-October peak, and $64, near the August countertrend high.
Super Micro has stated it does not expect to restate its quarterly reports for fiscal 2024 or prior fiscal years. The board has adopted all of the special committee’s recommendations, though specific details of these recommendations have not been disclosed.
The company’s relationship with AI chipmaker Nvidia has helped drive its business growth during the artificial intelligence boom, contributing to record highs in its stock price before the accounting allegations emerged.
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