The days of Super Micro Computer (NASDAQ: SMCI) is breaking records and mesmerizing investors with its incredible progress in the stock market, and recent developments indicate that they are not coming back in the foreseeable future.

Specifically, on October 30, the fact that Supermicro’s auditor, Ernst & Young, resigned six days earlier became public knowledge.

The filing proved particularly shocking due to the reasons given by the company as it stated that it is:

Resigns due to information that has recently come to our attention which has led us to no longer rely on the representations of management and the audit committee and that we are not willing to be associated with the financial statements prepared by management, and after summarizing, may we no longer provide the audit services in accordance with applicable law or professional obligations.

The letter sent shockwaves through the stock market, and SMCI stock experienced a notable decline in the extended session between Oct. 29 and Oct. 30 — a decline that ensured the company opened Wednesday near its press time price of $34.68, a whopping 29.38% in the red one.

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Nate Anderson, the founder of Hindenburg Research, at the same time marked that the termination letter is particularly strongly worded and implied that Nvidia (NASDAQ: NVDA) may be hiding a few skeletons in the closet due to SMCI being one of its clients:

The next question might be: What does Nvidia do with a client whose auditor suggests they lack “a commitment to integrity and ethical values?”

Anderson’s comments may be particularly significant because it was his company that kick-started — or rather, publicized — Supermicro’s staggering downfall with a scathing report accusing the tech giant of “accounting manipulation, sibling self-dealing and sanctions evasion.”

SMCI also failed to help its own case by indefinitely delaying the annual 10-K.

The downward pressure was compounded by a number of Wall Street analysts downgrades at the time, and the loss of confidence was enough that SMCI shares barely recovered any ground before the auditor’s departure, despite the stabilization in September and high-profile comments suggesting longer-term bullishness.

SMCI stock price chart

Elsewhere, the fact that SMCI shares remain 72.08% in the green on the year-to-date (YTD) chart serves as a stark reminder of the strength of the rally in the first half of 2024.

Unfortunately for Supermicro hopefuls, it also raises the question of how low the stock has yet to sink given the seriousness of the allegations, the length of the 10-K delay and the harshness of Ernst & Young’s resignation letter.

Featured image:

Swat, Piotr. Supermicro company logo displayed on mobile phone. Digital image. Konskie, Poland – May 27, 2024. Shutterstock May 28, 2024. Date Retrieved: October 30, 2024