On March 1st of this year, S&P Dow Jones Indices announced the concept stocks of AI servers.$Super Micro Computer (SMCI.US)$in the s&p 500 index, and the company subsequently reached a historic high of $122.9 on March 8th.

Back to this week, after a 32.68% drop on Wednesday, the stock price further dropped by over 10% at the opening on Thursday in the tech stock slump triggered by poor Microsoft earnings. As of the time of writing, the stock price hit a daily low of $27.22, wiping out up to 332% of this year's maximum gain.

This turmoil resulted in super micro computer losing over $50 billion in market cap more than half a year after entering the S&P 500 index! This loss will be shared by all global investors who purchased S&P 500 index funds, including investors from China.

The more essential insight is that the highly publicized 'AI speculation' in the secondary market may not be entirely rational.

Intense emotional fluctuations

Throughout its more than 30-year history, super micro computer has mostly remained relatively low-key. The turning point came in 2022 when the advent of ChatGPT sparked an AI investment frenzy that engraved its place in tech history. Super micro computer and Dell became the primary 'indirect beneficiaries' - responsible for embedding NVIDIA chips into customized servers, which were then sold to global tech companies waving their checkbooks.

At one point, hot money from around the world poured into this stock. Super Micro Computer rose by 86% in 2022, another 246% in 2023, and before the beginning of this year's sharp decline, the stock price even doubled at one point.

What deserves attention is that despite the company's revenue doubling in the last three quarters (although the company has not submitted formal financial reports to the SEC since May), the company plummeted nearly 80% due to an "audit storm".

According to a report by Caixin on Wednesday, Super Micro Computer's auditor Ernst & Young has resigned and bluntly stated "no intention to be associated with the financial statements prepared by management." Ernst & Young took over as Super Micro Computer's auditor from Deloitte in March last year, but resigned before completing the first annual report audit.

So the market is facing a situation where this leading stock in the AI hype cycle is at risk of being delisted by the exchange.

NASDAQ sent a letter to Super Micro Computer on September 17, warning that the company needs to submit an annual report or restore compliance within 60 days. The deadline for this point will be in mid-November.

What sends shivers down Wall Street's spine is that Super Micro Computer was delisted by NASDAQ in 2018 and was temporarily traded over-the-counter.

Faced with this situation, Wedbush, which is known for its promotion of the US technology sector, also expressed concern.

In its latest report, the institution stated that due to Super Micro Computer missing the deadline to submit the 10-K form, and with the clock now ticking to solve the problem. It appears that the latest developments have become a significant obstacle for the company to submit financial reports on time to avoid delisting.

Analysts at Mizuho Securities also stated that with Ernst & Young's resignation, Super Micro Computer is facing higher delisting risks, while hiring a new auditor also presents potential challenges.

In Wednesday's announcement, Super Micro Computer stated that the company does not believe the annual report as of June 30 needs to be restated. In response, Ernst & Young explicitly stated that they do not agree with this statement.

At the center of market turbulence, Super Micro Computer also released another announcement on Wednesday, declaring that it will release the first quarter report for the 2025 fiscal year after hours on November 5 (when the US presidential election vote counting begins), which covers the financial report from July to September this year.

Standard & Poor's has also faced criticism.

In general, it is not common for stocks to plummet immediately after being included in the S&P 500 index, because a large number of passive funds, pensions, and retirement funds will collectively buy stocks on the adjustment date. While Super Micro Computer dropped nearly 80%, Whirlpool, which it replaced, only dropped about 3%.

Kevin Barry, CEO of Cantata Wealth, criticized that when supplementing such a popular index, more consideration should be given to the volatility of companies, especially with technology stocks already accounting for nearly 30% of the index weight.

Barry said: 'The likelihood of stocks rising 10 times or 20 times within one or two years and then experiencing 'indigestion' is very high. You (S&P Index Company) are removing a low-volatility stock and replacing it with a high-volatility stock, while technology already holds the largest sector in the index.'

A spokesperson for the s&p global company declined to comment on individual component stocks or index changes, only stating that there are some general rules in the index document. The main requirements for inclusion are four consecutive quarters of GAAP positive earnings and a market cap of at least 18 billion US dollars. (Note: super micro computer's latest market cap has fallen to 17 billion US dollars)

Standard & Poor's reiterated that unplanned changes to the index can be made at any time to 'respond to corporate actions and market developments'.

Editor/ping