super microcomputer (NASDAQ:SMCI) Stocks had a great November and started December strong. It’s been a bit of a hectic time for the provider of artificial intelligence (AI) server stacks and cooling systems. However, if all the worries turn out to have less impact than many investors feared, these stocks could also have a lot more upside.
The great recovery of Supermicro shares began with a gain of 12.1% compared to the month of November, according to data provided by S&P Global Market Intelligence. But the thing didn’t stop there. In the first two trading days of December alone, shares rose more than another 30%. And it may not have been done yet.
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However, that massive move didn’t mean stocks have fully recovered from the panic selling that preceded it. While the recovery is underway, it is still down more than 45% in the last six months. Here’s a brief summary of what caused the stock to drop:
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Short-seller firm Hindenburg Research published a report in late August accusing Supermicro management of accounting manipulation, export control failures and other corporate culture problems.
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Supermicro immediately followed that with a delay in filing its annual 10-K report for its fiscal 2024 period ending June 30, 2024.
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The company received a default letter from the Nasdaq Stock Market.
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Supermicro’s auditor resigned in late October after raising concerns months earlier.
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Supermicro released the initial findings of an independent special committee on Nov. 5 and found “no evidence of fraud or misconduct by management or the board of directors.”
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The company filed a compliance plan with Nasdaq and appointed a new auditor on Nov. 18.
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The special committee released details of its full review on Dec. 2 supporting the preliminary findings and noting that no restatement of previously reported financial results is expected.
The result has been a sense of relief for investors that has sent buyers back into heavily shorted stocks. And that momentum may not have run its course yet. About 17.5% of the company’s shares were shorted as of mid-November, according to MarketWatch. But investors must realize that the current squeeze on short positions will come to an end and it will be necessary to refocus on the business itself.
The company plans to adopt several recommendations from the special committee. These include the hiring of a new chief financial officer (CFO), a chief compliance officer and a general counsel. It will also begin a program of continuous improvements in its financial controls and compliance processes.