The reason behind Super Micro stock’s 29% surge

Shares of Super Micro Computer surged 29% following a special committee’s conclusion that no evidence of misconduct was found within the company. The report, issued on December 2, 2024, comes amid heightened scrutiny after governance concerns and the resignation of the company’s previous auditor, Ernst & Young. The committee’s review, which included assessments of Super Micro’s senior management and audit practices, reaffirmed the company’s commitment to maintaining the integrity of its financial reporting.

The special committee asserted that “the evidence reviewed… did not raise any substantial concerns” regarding the integrity of Super Micro’s senior management or its Audit Committee. The investigation spanned three months, culminating in the appointment of Kenneth Cheung as the new chief accounting officer, replacing CFO David Weigand as part of the ongoing reforms within the organization.

In recent months, Super Micro’s stock has shown volatility. Although shares climbed approximately 48% year-to-date, they remain about 65% lower than their March peak, influenced by a report from Hindenburg Research alleging potential accounting manipulation. Super Micro’s shares previously increased dramatically, reflecting a twentyfold rise in two years due to escalating demand for Nvidia-based computer clusters. The company was also added to the S&P 500 index in March.

Ernst & Young’s resignation in October raised alarms, highlighting ongoing governance concerns at Super Micro. The company has yet to file audited financials for the past fiscal year ending in June or the most recent quarter. Analysts at JPMorgan noted that BDO, Super Micro’s new auditor, has not yet verified the company’s filings or addressed the governance issues that prompted Ernst & Young’s departure.

Despite the recent rise in share price, Super Micro faces the risk of delisting from the Nasdaq if it fails to meet the exchange’s compliance requirements due to its delayed financial reports. The company has expressed confidence in its ability to satisfy Nasdaq’s stipulations for maintaining its listing.

In light of the situation, analysts are focusing on critical upcoming developments. They are closely monitoring whether BDO will accept the findings of the special committee or initiate its independent review. Additionally, there is keen interest in whether Nasdaq will grant Super Micro an extension to regain compliance with its reporting requirements.

Super Micro’s special committee concluded that Ernst & Young’s concerns regarding the company’s audit practices were “not supported by the facts,” and emphasized the audit committee’s appropriate independence and oversight. This determination follows the involvement of multiple parties, including board members and forensic accounting experts from Secretariat Advisors during the review process.

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Featured image credit: Kerem Gülen/Midjourney