On Thursday, September 26th, before the midday of the US stock market, according to an exclusive report by The Wall Street Journal, the US Department of Justice is investigating the "AI Monster Stock", server manufacturer Super Micro Computer, following the release of a short selling report by Hindenburg Research. The investigation is in its preliminary stages.

This news caused Super Micro Computer to plummet in the short term, quickly turning from an initial 5.7% rise to a decline, and due to excessive volatility, it was temporarily halted multiple times. The Philadelphia Semiconductor Index's increase narrowed from an initial 4.4% to less than 1% at one point.

When Super Micro Computer resumed trading, its stock price saw the deepest decline widening to 18.6%, marking the largest drop in nearly a month and approaching the eight-month low set on September 6th. Popular chip stocks also experienced a downturn, with Nvidia initially rising 3.4% but then turning downwards by 1% and struggling to close higher at the end of the day.

At the opening, chip stocks rose across the board, mainly boosted by Micron Technology's strong AI demand as shown in Wednesday's post-market earnings report.

According to sources, a prosecutor from the US Federal Prosecutor's Office in San Francisco recently contacted some individuals seeking information from a former employee who accused Super Micro Computer and its CEO of accounting irregularities in April this year.

At the end of August, Super Micro Computer applied to the Securities and Exchange Commission (SEC) to delay the submission of its 2024 fiscal year 10-K annual report to complete the evaluation process. A few days before this application, Hindenburg Research released a short-selling report on the company, pointing out a series of issues such as "accounting manipulations, undisclosed related-party transactions, violations of export bans, and customer losses".

Regarding the short-term stock price plunge of Nvidia, some social media users mentioned that Nvidia's third-largest customer, Super Micro Computer, is under DOJ investigation for "accounting irregularities", making it hard not to associate negative news with Nvidia. "If true, this will confirm that Nvidia's vendor financing/reverse financing is collapsing."

The short sell report by Hindenburg Research also mentioned the accusations made by former employee Bob Luong of Super Micro Computer. In the whistleblower lawsuit, Bob Luong mentioned that Super Micro Computer dismissed several employees related to past accounting violations, and then rehired them. Bob Luong previously held the position of General Manager providing guidance for the global service team at the company and was dismissed in April last year.

He also accused Super Micro Computer of inappropriately recognizing revenues from the fiscal years 2020 to 2022 in certain situations. For example, in some cases, the company booked unfinished sales revenue, and another method of prematurely recording revenue was by 'shipping to certain customers and charging for incomplete equipment not yet ready for sale.'

Furthermore, the Hindenburg short sell report also questioned the related transactions between Super Micro Computer and other companies run by CEO Charles Liang's family, alleging violations of the US sanctions against Russia following the outbreak of the Russia-Ukraine conflict.

Super Micro Computer's CEO wrote to customers on September 3rd stating that the short sell report 'contains false or inaccurate statements about our company,' and does not expect any significant changes to the previously released financial performance for the fiscal year 2024.

It is reported that Super Micro Computer has applied to the court to temporarily suspend Bob Luong's lawsuit and submit his claims to arbitration. In 2020, Super Micro Computer paid $17.5 million to settle SEC's allegations of widespread accounting violations, and the company's CEO reached a settlement with the SEC, returning $2.1 million of stock sale profits to the company. However, neither the company nor the CEO was charged with misconduct.

It is worth noting that in early August, Super Micro Computer announced a 10-to-1 stock split plan to be implemented on October 1st. This was mainly due to the rapid rise in the company's stock price over a short period of time, with the split no longer being 'too expensive' post-split to stimulate new buying activities. From the beginning of 2023 to March this year, the stock had a peak period of 14-fold increase, with the company's market cap reaching $66 billion.

The US stock research institution The Motley Fool pointed out that Super Micro Computer has dropped nearly 70% in price since reaching a high in March, with continued selling likely due to mixed earnings reports and the Hindenburg short sell report:

"Significant capital expenditures have significantly impacted the company's gross margin, leading to concerns about its liquidity and long-term profit potential. However, management describes the deteriorating profit margin as a short-term issue related to new product launches and supply chain problems."

Editor/Lambor