Super Micro's Stock Plummets Amid Accounting Scandal, Raising Questions About AI Market Stability

AI Bubble Bursting? Super Micro's Downfall Highlights Risks Facing AI-Driven Stocks

Some analysts suggest that a change in leadership, particularly the CEO position, could be necessary to restore investor confidence. Once a high-flying artificial intelligence (AI) stock, Super Micro Computer (SMCI) faces a perfect storm of problems. Accounting scandals, potential delisting, and a cooling AI market have plummeted the stock. Super Micro Computer has announced preliminary financial results for the first quarter of fiscal year 2025, ending on Sept. 30, 2024. The company reported net sales between $5.9 billion and $6.0 billion, slightly below its prior forecast of $6.0-$7.0 billion. The expected GAAP and non-GAAP gross margin is approximately 13%. GAAP diluted net income per share is in the $0.68 to $0.70 range, exceeding the previous estimate of $0.60 to $0.77. Non-GAAP diluted net income per share is between $0.75 and $0.76, above the prior guidance of $0.67 to $0.83. For the first quarter, Super Micro's non-GAAP financials adjust for $50 million in stock-based compensation expenses, with tax effects of $17 million. The company also reported $2.1 billion in cash and cash equivalents and $2.3 billion in total debt, including $0.6 billion in bank debt and $1.7 billion in convertible notes. Looking ahead to the second quarter, ending Dec. 31, Super Micro anticipates net sales between $5.5 billion and $6.1 billion. GAAP net income per diluted share is expected to be between $0.48 and $0.58. Non-GAAP net income per diluted share is projected to be between $0.56 and $0.65. Wall Street analysts are assessing the likelihood that data center specialist Super Micro could face delisting from the Nasdaq due to ongoing accounting issues. This concern has weighed on Super Micro's stock while benefiting shares of competitor Dell Technologies (DELL). Last week, Super Micro revealed that Ernst & Young had resigned as its auditor, citing concerns over the company's financial reporting practices. This disclosure followed an already delayed annual 10-K filing and reports of a possible U.S. Department of Justice investigation. Super Micro has until November 20 to submit a plan to regain compliance with Nasdaq's listing requirements. "We've received mixed feedback on whether SMCI's filing delays or the DOJ investigation are affecting customer decisions," remarked Wedbush Securities analyst Matt Bryson . "However, given these issues, we're more cautious about SMCI's ability to meet or exceed Q1 expectations or provide solid guidance for Q2." Bryson added, "It now appears to be an uphill battle for SMCI to remain listed." Super Micro was previously delisted in 2018 over delays in financial report filings. Is the AI Bubble Bursting? Super Micro, once an early winner in the artificial intelligence boom, now faces challenges threatening its momentum, largely due to accounting issues casting uncertainty over the company. To fully capitalize on the AI trend, many believe Super Micro's CEO should step down to restore confidence. One such expert, Francine McKenna , suggests that finding a replacement auditor among the Big Four may be difficult, as Super Micro has already worked with two of them. The remaining options, KPMG and PwC, would likely demand significant leadership changes, including a new CEO, possibly a new CFO, and an overhaul of the audit committee, McKenna noted. Super Micro's revenue has surged recently, fueled by strong demand for AI servers. At its peak in 2024, its stock climbed over 300%. Yet, while CEO Charles Liang helped guide the company to these heights, the stock has since plummeted as investors respond to both the accounting concerns and pressure on margins within the AI server market. The Department of Justice probe further dampens investor sentiment, erasing Super Micro's year-to-date gains. The collapse of Super Micro on the stock exchange has raised questions about whether an AI bubble is bursting. However, as other tech stocks have been up since Donald Trump's victory, it looks like SMCI issues are just an isolated case.

Super Micro Computer stock bleeds 24% after it can't even say when it will post actual earnings

Super Micro Computer Inc. (SMCI-22.53%) shares plummeted more than 24% on Wednesday after the AI hardware company released a disappointing preliminary first-quarter report and failed to confirm a timeline for its actual first-quarter results. The San Jose-based company, which missed the deadline for filing its annual report, is also facing a potential Nasdaq delisting. The company reported unaudited quarterly results on Tuesday after the market closed, leading to the sharp sell-off. This development follows the recent resignation of its auditor, Ernst & Young, which departed last week, citing disagreements over Super Micro Computer's governance practices and board independence. On Wednesday, the stock was trading near $21, marking a fresh 52-week low. Compared to its March peak of $123, the price has plunged over 82%, erasing over $55 billion in value. For the quarter ending September 30, Super Micro reported net sales between $5.9 billion and $6 billion, falling short of analyst expectations, which had forecasted $6.45 billion. The company's forecast for the December quarter also fell short of expectations, and it projected revenue between $5.5 billion and $6.1 billion, which was below the consensus estimate of analysts of $6.86 billion. Additionally, Super Micro expects adjusted earnings per share (EPS) to range from 56 cents to 65 cents, while analysts had anticipated EPS of 83 cents. On Tuesday, the company made no mention of Ernst & Young's departure or any ongoing corporate governance concerns. However, CEO Charles Liang did confirm that Super Micro is actively working to hire a new auditor. It's important to note that the company has not reported audited financial results since May. Moreover, the company is facing potential delisting from the Nasdaq. After receiving a non-compliance letter in September, Super Micro has until November 16 to submit a plan to Nasdaq to regain compliance, or it could face delisting for the second time in five years. The company makes hardware that supports AI applications, thrived this year due to the high demand for AI, and entered the Fortune 500 at No. 498. As a key partner and reseller of Nvidia's (NVDA+3.26% GPUs and other components, Super Micro integrates its technology into its servers to support AI workloads. Super Micro CEO Charles Liang and Nvidia CEO Jensen Huang are both Taiwanese immigrants and have a long-standing relationship. CEO Liang said on Tuesday that the company is working closely with Nvidia and that the demand is strong.

How Bad Is This News for Super Micro Computer? | The Motley Fool

Supermicro stock plummeted 32% in one trading session on this latest news. Super Micro Computer (SMCI -11.97%) has been one of the early stars of the artificial intelligence (AI) boom. The maker of servers, workstations, and other equipment critical to data center operations has seen revenue rise in the triple digits in recent times due to demand for its products. And that's helped the stock take off, soaring more than 4,800% in the five years through February -- and Supermicro continued the momentum in the first half of this year, climbing 188% to even beat market darling Nvidia. But the second half of the year has been difficult for the AI equipment giant. A series of headwinds -- including a short report alleging troubles at the company -- have weighed heavily on the stock. And just this week, news that EY, formerly Ernst & Young, resigned as Supermicro's auditor, citing concerns about the company's internal controls over financial reporting. The stock sank 32% in one trading session. How bad is this news for the AI equipment maker? Let's find out. First, though, let's talk about the three pieces of news that have pressured Supermicro over the past few weeks. In late August, Hindenburg Research released a short report, saying that in its own investigation it found "glaring accounting red flags" and other problems at the company. Supermicro responded, saying statements in the report were "false or inaccurate." And it's important to keep in mind that Hindenburg, holding a short position in Supermicro, was set to gain if the stock fell -- this bias made it difficult for investors to rely on the research firm as a source. Meanwhile, Supermicro delayed the filing of its 10-K annual report, a move that prompted investors to worry about potential problems. Supermicro addressed this issue too, saying it didn't foresee any significant changes to fourth-quarter or full-year earnings figures. A few weeks later, The Wall Street Journal, citing people familiar with the situation, reported that the Justice Department had launched a probe into Supermicro. Spokespeople for the U.S. attorney's office and for Supermicro declined to comment when contacted by the newspaper. These events added uncertainty and risk to the Supermicro story, making it one cautious investors were better off avoiding. Still, since we didn't have facts to confirm the above issues, a bargain valuation of around 15x forward earnings estimates during the past two months made it a stock some very aggressive investors could consider. The resignation of EY doesn't confirm the headwinds I've mentioned above. But it does prompt me to say all investors now should view the stock with caution and watch and wait as this story develops. This is because the firm, as an auditor, is an unbiased party and generally has a clear view of internal financial controls. EY's words below suggest a lack of faith in management, a major problem for an auditor and just as big of a problem for an investor. Before investing in a stock, it's crucial to have confidence in the company's management team, and this includes how the team oversees accounting practices and overall strategy. EY, in its resignation, wrote: "We are resigning due to information that has recently come to our attention which has led us to no longer be able to rely on management's and the Audit Committee's representations and to be unwilling to be associated with the financial statements prepared by management, and after concluding we can no longer provide the Audit Services in accordance with applicable law or professional obligations." EY initially signaled concerns in July, and Supermicro's board appointed a special committee to review the matter. The review remains ongoing. Supermicro, in a filing with the Securities and Exchange Commission (SEC) to announce the auditor's resignation, responded: "The Company has taken the concerns expressed by EY seriously, and will carefully consider the findings of the Special Committee and any remedial or other actions recommended by the Special Committee following conclusion of the Review." It's positive that Supermicro aims to address any problems, but this doesn't remove the risk linked to the stock right now. And that's why it's best to hold off on investing in Supermicro stock as this story unfolds. What's also troubling is this isn't the first time Supermicro has faced accounting issues. The SEC ordered the company to pay a $17.5 million fine for "improper accounting" back in 2020. Does this quash Supermicro's bright long-term prospects? After all, the company is a leader in the AI server market, is seeing strong demand, and may have a new growth driver ahead as data centers adopt direct liquid cooling (DLC) technology (an area of expertise for Supermicro). Supermicro still could excel over time, but without clarity regarding the accounting situation, it's impossible to draw conclusions. And that's why Supermicro remains a company to watch -- but from the safety of the sidelines at least until the uncertainty has lifted.

Can NVIDIA's stock stay out of the SMCI fire? By Investing.com

During the whirlwind AI boom over the past nearly two years, when market watchers think of AI servers, they think of NVIDIA (NASDAQ:NVDA) and Super Micro Computer (NASDAQ:SMCI). The two have been tied at the hip. NVIDIA makes the AI chips, and Super Micro makes the AI servers. Since ChatGPT took the world by storm on November 30, 2022, and the AI race started, NVIDIA's stock has been up an astonishing 760%, while Super Micro's stock has been up more than 1200% at its peak. Now, one company is embroiled in an accounting scandal, and the other is trying to distance themselves from the situation. On August 27, 2024, short-selling-focused research firm Hindenburg Research issued a scathing report about Super Micro, alleging corporate maleficence, channel stuffing, related party transactions, selling products to bad actors like Russia, and shoddy workmanship. According to Hindenburg, Super Micro re-hired some of the same top executives charged when the company was hit by SEC accounting violations in 2020, which was later settled. Further, related party questions have been raised about suppliers Ablecom and Compuware. CEO Charles Liang's brothers control the two suppliers, and Liang and his wife partly own Ablecom. Exports of Super Micro's high-tech components to Russia are up three-fold since Russia's invasion of Ukraine in February 2022, Hindenburg also found. Meanwhile, competitors like Dell (NYSE:DELL) and others have been winning orders due to quality concerns at Super Micro. The initial shock of the late August Hindenburg report sent Super Micro's stock immediately down 19%, but matters have only worsened. First, just one day after the Hindenburg report, the company delayed its 10-K filing for fiscal year 2024, which later triggered a non-compliance letter from the Nasdaq stock exchange warning of a possible delisting. This week, however, the situation took an ugly turn after Super Micro's auditor, Ernst & Young, resigned, adding fuel to the corporate maleficence fire. In late July 2024, the accounting firm raised "concerns about several matters relating to governance, transparency and completeness of communications to EY, and other matters pertaining to the Company's internal control over financial reporting..." Additional information received from the accounting firm "raised questions, including about whether the Company demonstrates a commitment to integrity and ethical values consistent with Principle 1 of the COSO Framework, about the ability and willingness of the Audit Committee and overall Board to demonstrate and act as an oversight body that is independent of the CEO and other members of management in accordance with Principle 2 of the COSO Framework, and whether EY could rely on representations from certain members of management and from the Audit Committee." In the Resignation Letter, the accounting firm stated, in part: "we are resigning due to information that has recently come to our attention which has led us to no longer be able to rely on management's and the Audit Committee's representations and to be unwilling to be associated with the financial statements prepared by management, and after concluding we can no longer provide the Audit Services in accordance with applicable law or professional obligations." Shares of Super Micro fell another 43% this week following the auditor's resignation. The stock is now down 50% from the Hindenburg short report and 77% from its March 2024 peak. Meanwhile, NVIDIA, has largely been unfazed by the Super Micro situation until cracks started emerging this week after the auditor's resignation. NVIDIA's stock is down nearly 4% since the Super Micro auditor's resignation, including Thursday's 4.7% sell-off. Wall Street analysts are now asking if NVIDIA can separate themselves from the Super Micro situation. Mizuho desk analyst Jordan Klein thinks NVIDIA is at risk of missing its own guidance if the Super Micro situation worsens and they cannot fund the business. He highlights that Super Micro operates with negative working capital and requires a lot of cash and funding to purchase large volumes of GPUs and liquid cooling products to build multi-million dollar NVL72 Blackwell rack systems. "How do you raise money when you have no auditor or are unable to file financial statements?" Klein asks about Super Micro. The analyst thinks NVIDIA will likely start moving most of their GPU supply away from Super Micro until they get more clarity on the situation. The analyst highlighted Super Micro's competitor, Dell, as a likely beneficiary if NVIDIA moves its supply away from Super Micro. While moving GPU supply away from Super Micro seems like a plausible mid-term solution for NVIDIA, it is unclear if a near-term disruption or possible delayed payments from Super Micro could impact NVIDIA's short-term financial results. Despite Super Micro's woes, overall AI demand and the race to Artificial General Intelligence don't appear to be slowing down, and NVIDIA is still seen as getting the lion's share. BofA Securities, for example, continues to expect AI accelerator demand to grow to $280 billion by 2027 and more than $400 billion over time, with Nvidia garnering 75% of the market share despite increased competition. NVIDIA, for its part, is not commenting on the Super Micro matter. "We'll decline comment," an NVIDIA spokesperson said when reached by Investing.com for comment about Super Micro. Despite not publicly speaking about the Super Micro situation, management's actions show that NVIDIA is quietly distancing itself from Super Micro. In May 2024, as noted by Hindenburg, NVIDIA CEO Jensen Huang publicly endorsed Super Micro competitor Dell. "Nobody is better at building end-to-end systems of very large scale for the enterprise than Dell," Huang said. It remains to be seen whether the Super Micro debacle impacts NVIDIA, but the auditor situation has raised the stakes, and customers are likely asking questions. Now investors are, too.

Super Micro's $50 billion stock collapse underscores risk of AI hype

Less than two weeks after the index changes were announced, Super Micro reached its closing high of $118.81 and had a market cap of almost $70 billion. The stock is down 72% since then, pushing the valuation to under $20 billion, the first major sign in the public markets that the hype around artificial intelligence may not all be justified. Super Micro is one of the primary vendors for building out Nvidia-based clusters of servers for training and deploying AI models. The stock plunged 33% on Wednesday, after the company disclosed that its auditor, Ernst & Young, had resigned, saying it was "unwilling to be associated with the financial statements prepared by management." Super Micro is now at risk of being delisted from the Nasdaq, and has until Nov. 16 to regain compliance with the stock exchange. "We see higher delisting risk in the absence of an auditor and the potential challenge to getting a new one," analysts at Mizuho, who have the equivalent of a hold rating on the stock, wrote in a report on Wednesday. Ernst & Young was new to the job, having just replaced Deloitte & Touche as Super Micro's accounting firm in March 2023. A Super Micro spokesperson told CNBC in a statement that the company "disagrees with E&Y's decision to resign, and we are working diligently to select new auditors." Representatives for Ernst & Young and Deloitte didn't respond to requests for comment.

I Just Sold All of My Super Micro Computer Stock. Should You Follow Suit? | The Motley Fool

Supermicro's financial auditor just resigned, adding to the company's recent turmoil. Super Micro Computer (SMCI -23.86%) has been one of the most volatile stocks in 2024. It started the year with a stunning 300% gain over just three months, but the stock has been declining since March following a series of worrying headlines. The biggest shocks for investors have come in the past few months as Supermicro's accounting practices are called into question. And the latest piece of news was enough for me to completely exit my position in the stock. Supermicro is benefiting significantly from artificial intelligence (AI) tailwinds. It builds full-scale servers and other components that are sold to companies looking to expand their AI computing power. Although it hasn't received quite the same press as Nvidia, it remains one of the biggest winners among AI stocks. Its top line has exploded with revenue up 143% year over year to $5.3 billion in its fiscal 2024 fourth quarter (ended June 30), and management previously guided for 74% to 101% growth in fiscal 2025. Unfortunately, some investors may have trouble trusting those numbers. Supermicro's most serious problems kicked off when Hindenburg Research released a short report on the company in late August. In its report, the firm accused Supermicro of accounting malpractice, reminding investors of the $17.5 million penalty the company paid in a 2020 settlement to the SEC over similar accounting violations. To make matters worse, management announced the day after the short report that it was delaying the filing of its form 10-K to assess the "design and operating effectiveness of its internal controls over financial reporting." This news was followed by reports that the Department of Justice had launched its own probe into the company. These developments sent the stock plunging, and I picked up shares of Supermicro during this time, believing the risk was worth the potential reward given the very real boom in AI computing demand. However, I kept my position size small at about 1% of my portfolio. The problem is, it's looking more and more like Hindenburg's short report may be accurate. Supermicro still hasn't filed its 10-K, so investors don't know what changes or restatements (if any) are going to occur. However, one firm has seen its financials: Ernst & Young, its financial auditor. Ernst & Young resigned from its position as Supermicro's auditor last month, saying they were "unwilling to be associated with the financial statements prepared by management." In other words, the auditor is saying they don't trust what management is telling them. This is about as big of a red flag for a company as you can get. If you can't trust the financials a company is reporting, then you can't trust anything they do or say. Following the resignation, the stock immediately lost a third of its value. I was among those who sold as it's pretty clear the issues around Supermicro aren't going away. Even if Supermicro cleans up its act, it will face an uphill battle rebuilding its reputation and trust with shareholders. Many investors, analysts, and investment firms will likely avoid it entirely, even if it's growing at an impressive pace. The only thing that would convince me to return to the stock is a brand new management team. However, considering CEO Charles Liang is also the founder and chairman of the board, it's unlikely that will happen. There are many promising tech stocks in the market beyond Super Micro Computer, and if you still hold shares, you should consider selling them. There is no easy path forward for the company.

Could This Move by Nvidia Protect It From Super Micro Computer's Woes? | The Motley Fool

Supermicro has been an important player in the Nvidia growth story. Super Micro Computer (SMCI 6.42%) and Nvidia (NVDA 2.84%) have both been winners during this artificial intelligence (AI) boom. Nvidia makes graphics processing units (GPUs) and other related products and services, while Super Micro Computer, also known as Supermicro, incorporates GPUs -- those of Nvidia and other chip designers -- into its server systems for data centers. This has resulted in triple-digit sales growth for both companies in the latest quarters; ongoing high demand is a positive sign for the future. But in recent times, Supermicro has stumbled. A short report in August alleged troubles at the company, and at the same time but in an unrelated move, Supermicro delayed its 10-K annual report. A few weeks later, The Wall Street Journal reported that the Justice Department was investigating the company. Supermicro's problems intensified last month when the firm's auditor, Ernst & Young, quit, citing concerns about the company's financial reporting. Now, it's natural for investors to worry about the impact of these troubles on Nvidia due to the companies' relationship. But could one particular move by Nvidia protect it from Supermicro's woes? Let's find out. First, a bit more detail about Supermicro's recent situation, and then I'll talk about how the company works with Nvidia. A short report in late August set off the string of difficulties at Supermicro, with Hindenburg Research alleging several issues, including "glaring accounting red flags." Supermicro responded, calling the statements "false or inaccurate." Meanwhile, Supermicro delayed the filing of its 10-K annual report but informed customers and investors that it didn't expect any significant changes to fourth-quarter or annual-earnings figures. But the pressure still is on for Supermicro to complete the 10-K: Nasdaq sent the company a non-compliance letter due to the delay, and the company has until later this month to file or submit a plan to regain compliance with listing rules. So, at this point, the company faces the possibility of delisting. As for The Wall Street Journal report about a possible Justice Department probe, Supermicro declined to comment. Finally, late last month, Ernst & Young resigned as auditor of Supermicro. Ernst & Young stated that it was no longer "able to rely on management's and the Audit Committee's representations," and it was "unwilling to be associated with the financial statements prepared by management." From the start of Supermicro's problems with the Hindenburg report through today, the stock has lost 52%. Now, let's consider how Nvidia fits into the Supermicro picture. As Supermicro states in its 2023 annual report, large equipment orders "may require greater commitments of working capital, which may require increased borrowings under our credit facilities to fund purchases of key components." And in recent earnings reports, Supermicro noted ongoing high demand for its rack scale solutions incorporating Nvidia's GPUs. The risk here, considering Supermicro's current troubles, is the company could have difficulty increasing borrowing to fund orders, and this may impact Nvidia's revenue at least in the near term. The situation is particularly noteworthy today as Nvidia prepares to launch its Blackwell architecture, a new platform in high demand. So, should we worry about Nvidia right now? Well, the top chip designer may be taking the necessary steps to avoid significant supply chain problems and impact on its sales. Nvidia is said to be shifting Supermicro orders to other vendors, according to a DigiTimes Asia article. This is positive as it should minimize impact on sales and keep the supply chain flowing, but it's possible Nvidia will see some near-term effects. After all, Supermicro is one of the leading equipment makers, and considering demand for Blackwell surpasses supply, every player involved in bringing Blackwell to customers holds a key role. Still, it's important to take a long-term view of this situation, and if we do this, there's reason to be confident about Nvidia even as Supermicro navigates difficult waters. If the DigiTimes report is correct, Nvidia is making the right moves, and any potential impact on Nvidia's revenue or delay in order deliveries in the short term should be limited thanks to this sort of proactive step. Even better, potential impact today won't change Nvidia's bright, long-term picture. Nvidia's products and services are in high demand, and the company works with a wide range of players -- from equipment makers to cloud-service providers -- to ensure customers have access to them. All of this means that if Nvidia's stock slips on Supermicro's recent troubles, it represents a fantastic buying opportunity.

Nvidia said to be routing orders away from Super Micro amid accounting woes By Investing.com

Investing.com -- AI server maker Super Micro Computer Inc (NASDAQ:SMCI) is volatile again Monday as it continues to suffer from the news last week that its auditor is resigning. Adding to today's volatility is an article in Asia that NVIDIA Corporation (NASDAQ:NVDA) is stepping in to restructure Super Micro orders, reshaping the AI supply chain. After trading down over 8% early Monday, the stock was last up 4%. According to DigiTimes Asia, supply chain sources indicate that Asia-based server ODMs Gigabyte and ASRock have gained from rerouted SMCI orders, securing contracts with major generative AI compute supplier Coreweave. Last week, Super Micro disclosed that Ernst & Young (EY) resigned as its auditor, citing governance, transparency, and internal control concerns. EY questioned whether the company upheld ethical standards, met COSO Framework principles, and maintained an independent oversight body. In its resignation letter, EY stated it could no longer rely on management's representations or associate with the company's financial statements due to recently uncovered issues. The stock, already on its back foot from a Hindenburg Research short report from August, plunged 47% last week after the auditor news. NVIDIA, for its part, is not talking about Super Micro's woes. "We'll decline comment," an NVIDIA spokesperson responded when reached last week by Investing.com for comment about the Super Micro situation. Mizuho desk analyst Jordan Klein has been pounding the table on Dell Technologies Inc (NYSE:DELL) as a beneficiary to Super Micro's woes. "It may take some time, but my call is sooner than later, you start to hear from DELL mgmt. about demand and order book expansion related to SMCI overhang issues," Klein said in a note to clients Monday about his long Dell call.

Super Micro's $50 billion stock collapse underscores risk of AI hype

In March, Super Micro Computer was added to the S&P 500 after an epic run that lifted the stock by more than 2,000% in two years, dwarfing even Nvidia's gains. Less than two weeks after the index changes were announced, Super Micro reached its closing high of $118.81 and had a market cap of almost $70 billion. The stock is down 72% since then, pushing the valuation to under $20 billion, the first major sign in the public markets that the hype around artificial intelligence may not all be justified. Super Micro is one of the primary vendors for building out Nvidia-based clusters of servers for training and deploying AI models. The stock plunged 33% on Wednesday, after the company disclosed that its auditor, Ernst & Young, had resigned, saying it was "unwilling to be associated with the financial statements prepared by management." It was down another 16% on Thursday. Super Micro is now at risk of being delisted from the Nasdaq, and has until Nov. 16 to regain compliance with the stock exchange. "We see higher delisting risk in the absence of an auditor and the potential challenge to getting a new one," analysts at Mizuho, who have the equivalent of a hold rating on the stock, wrote in a report Wednesday. Ernst & Young was new to the job, having just replaced Deloitte & Touche as Super Micro's accounting firm in March 2023. A Super Micro spokesperson told CNBC in a statement that the company "disagrees with E&Y's decision to resign, and we are working diligently to select new auditors." Representatives for Ernst & Young and Deloitte didn't respond to requests for comment. For much of Super Micro's three decades in business, the company existed well below the radar, plodding along as a relatively obscure Silicon Valley data center company. That all changed in late 2022 after OpenAI's launch of ChatGPT set off a historic wave of investment in AI processors, largely supplied by Nvidia. Along with Dell, Super Micro has been among the big tangential winners in the Nvidia boom, packaging up the powerful graphics processing units (GPUs) inside customized servers. Super Micro's revenue has at least doubled in each of the prior three quarters, though the company hasn't filed official financial disclosures with the SEC since May. Wall Street's mood on the company has shifted dramatically. Since the S&P's announced index changes in March, Super Micro's stock has dropped at least 10% on several separate occasions. The most concerning slide, prior to Wednesday, came on Aug. 28, when the shares sank 19% after Super Micro said it wouldn't file its annual report with the SEC on time. "Additional time is needed for SMCI's management to complete its assessment of the design and operating effectiveness of its internal controls over financial reporting as of June 30, 2024," the company said. Noted short seller Hindenburg Research then disclosed a short position in the company, and said in a report that it identified "fresh evidence of accounting manipulation." The Wall Street Journal later reported that the Department of Justice was at the early stages of a probe into the company. The month after announcing its report delay, Super Micro said it had received a notification from the Nasdaq, indicating that the delay in the filing of its annual report meant the company wasn't in compliance with the exchange's listing rules. Super Micro said the Nasdaq's rules allowed the company 60 days to file its report or submit a plan to regain compliance. Based on that timeframe, the deadline would be mid-November. "With SMCI having missed the deadline to file its 10K and the clock ticking for SMCI to remedy this issue, we see this development as a significant hurdle standing in the way of SMCI's path to filing in time to avoid delisting," the analysts, who recommend holding the stock, wrote in a report. As Super Micro's stock was in the midst of its steepest sell-off since 2018 on Wednesday, the company put out a press release announcing that it would "provide a first quarter fiscal 2025 business update" on Tuesday, Nov. 5. That's Election Day in the U.S. Super Micro's spokesperson told CNBC that the company doesn't expect matters raised by Ernst & Young to "result in any restatements of its quarterly financial results for the fiscal year ended June 30, 2024, or for prior fiscal years." The selloff continued on Thursday, with the stock falling to its lowest level since January. Analysts at Gordon Haskett called the Ernst & Young news a "backbreaker," while Argus Research downgraded the stock, in the intermediate firm, to a hold, citing the Hindenburg note, report of the Justice Department investigation and the departure of Super Micro's accounting firm. "The company's loss of its auditing firm and the DoJ investigation mean that the stock no longer trades on fundamentals," Argus analyst Jim Kelleher wrote. Beyond Super Micro, the evolving incident is a potential black eye for S&P Dow Jones. Since Super Micro replaced Whirlpool in the S&P 500, shares of the home appliance company are down about 3%, underperforming the broader market but holding up much better than the stock that took its place. Inclusion in the S&P 500 often causes a stock to rise, because money managers tracking the index have to buy shares to reflect the changes. That means pension and retirement funds have more exposure to the index's members. Super Micro shot up 19% on March 4, the first trading day after the announcement. A spokesperson for S&P Global said the company doesn't comment on individual constituents or index changes, and pointed to its methodology document for general rules. The primary requirements for inclusion are positive GAAP earnings over the four latest quarters and a market cap of at least $18 billion. S&P is able to make unscheduled changes to its indexes at any time "in response to corporate actions and market developments." Kevin Barry, chief investment officer at Cantata Wealth, says greater consideration should be given to a stock's volatility when additions are made to such a heavily tracked index, especially given that tech already accounts for about 30% of its weighting. "The chances of a stock going up 10 or 20 times in a year or two and then having an indigestion moment is extremely high," said Barry, who co-founded Cantata this year. "You're moving out of a low-volatility stock into a higher-volatility stock, when tech already represents the largest sector by far in the index."