Key Takeaways
- Federal prosecutors indicted three individuals connected to Super Micro Computer for allegedly smuggling Nvidia processors to China, including co-founder Wally Liaw
- SMCI shares plummeted more than 30% on Friday after the indictment was announced, bringing year-to-date losses to 26%
- Nvidia has remained silent on whether it will maintain its chip supply relationship with Super Micro
- Citi analysts slashed their SMCI price target from $39 down to $25, warning of significant reputational damage
- Wall Street analysts agree that Super Micro’s survival depends on maintaining Nvidia’s chip allocations
Federal authorities arrested Super Micro’s co-founder last week on allegations of orchestrating an illegal scheme to export Nvidia chips to China. The criminal indictment also implicated a company employee and an external contractor, though Super Micro as an entity was not named as a defendant.
Super Micro Computer, Inc., SMCI
Yih-Shyan “Wally” Liaw, currently serving on the company’s board of directors, allegedly participated in a conspiracy to illegally divert Nvidia’s advanced B200 processors. SMCI stock suffered a dramatic selloff following the announcement — shares collapsed by approximately one-third during Friday’s trading session.
The stock experienced a modest rebound on Monday alongside broader market gains driven by positive geopolitical developments. Nevertheless, SMCI remains down 26% year-to-date, marking a turbulent period for a company that had previously benefited from surging AI infrastructure demand.
Liaw’s corporate history adds another problematic dimension to the situation. He stepped down from his position in 2018 following an internal audit committee investigation that resulted in restated financials. Super Micro rehired him in 2022 and appointed him to the board in 2023. That decision now appears questionable given the current criminal allegations.
This isn’t Super Micro’s first brush with controversy. In 2024, activist short seller Hindenburg Research published concerns about the company’s accounting practices. Those allegations eventually resulted in Super Micro parting ways with its independent auditor and sparked a Justice Department investigation.
Wall Street Slashes Price Expectations
Citi analyst Asiya Merchant reduced her SMCI price target to $25 from $39 on Monday, maintaining a Neutral rating with High risk designation. She noted that despite the charges targeting specific individuals rather than the corporation, customers and suppliers will likely impose heightened due diligence.
“We believe this warrants a lower valuation until there is more visibility on the path forward,” Merchant stated. Super Micro shares declined slightly in Tuesday’s premarket session.
Bernstein Research analysts also weighed in, noting that the indictment “raises serious credibility issues that could impact business” despite the company not being formally charged.
Nvidia Relationship Holds the Key
The critical factor determining Super Micro’s trajectory is whether Nvidia continues allocating GPU shipments to the company. Bernstein cautioned that any disruption to GPU supplies would deliver a “devastating impact” to operations.
Nvidia issued a brief statement emphasizing that export control compliance remains a “top priority,” but conspicuously avoided commenting on its future business relationship with Super Micro.
Super Micro reported revenue exceeding $12.7 billion for the December quarter, representing more than 100% growth. The company projects $40 billion in revenue for the fiscal year concluding in June — approximately double the previous year’s performance.
Susquehanna analyst Mehdi Hosseini argued that the indictment “only underscores the urgency” of replacing CEO Charles Liang with an external candidate and installing fully independent board directors.
The company recorded historically low gross margins of 6.3% in the most recent quarter. Hosseini observed that executive compensation structures have traditionally emphasized revenue expansion despite deteriorating financial quality metrics.
Nvidia plans to introduce its next-generation Vera Rubin chip architecture later this year, potentially enabling the company to redirect any Super Micro allocations to alternative partners relatively seamlessly. The alleged chip smuggling incident also creates political complications for Nvidia with the Trump administration, which has prioritized restricting advanced AI chip exports to China.
Super Micro stock traded around $35 in Tuesday’s premarket activity.
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