Super Micro’s Roller Coaster Ride: AI Boom, Auditor Bust, and Family Ties — Dare to Buy?

Super Micro was living the dream in the AI craze, seeing its stock soar over 3,000% as the company became a top player in high-performance servers, which power cutting-edge AI models and use top chips like Nvidia’s. But just as the company hit the $20 billion mark and made a glitzy entrance into the Fortune 500, the ride took a stomach-turning drop. Ernst & Young (EY), Super Micro’s auditor, decided to quit—publicly declaring it no longer trusts the company’s management. Ouch.

For a company that seemed to be on top of the world, the news hit hard. EY’s very loud exit, also known as a “noisy withdrawal,” sent Super Micro’s stock down a whopping 33% in a single day. In financial circles, that’s the equivalent of waving a giant red flag in front of a herd of bulls.

The Plot Thickens

Super Micro has been no stranger to financial drama. Back in 2020, they paid the SEC $17.5 million to settle claims of questionable accounting practices from 2015 to 2017. And in August, the notorious short-seller Hindenburg Research dropped a bombshell report accusing Super Micro of a laundry list of accounting “red flags,” sketchy undisclosed relationships, and even potential export violations. But Super Micro called Hindenburg’s report “false and misleading” and assured everyone they’re squeaky clean.

Still, the heat turned up again when EY flagged concerns to the company’s audit committee, which then formed a special committee to investigate. While Super Micro insists these issues won’t require any financial restatements (because nothing soothes nerves like saying, “Don’t worry, we probably don’t need to fix anything!”), EY wasn’t buying it. EY’s letter to the SEC read more like a spicy breakup text, where it made it clear they only agreed with Super Micro’s statements in a few cherry-picked spots.

Accounting expert Francine McKenna put it best: “There are noisy resignations, and then there are resignations that bang a big giant gong—and this is as bad as it can get.”

Meanwhile, at Nasdaq HQ…

Adding to the chaos, Super Micro recently got a warning from Nasdaq for failing to file its annual report on time. They’ve been given until November 27 to get it together and file their audited financials or face more consequences. Meanwhile, they’ve even pulled a classic tech move: the 10-for-1 stock split. On September 30, Super Micro’s share count went from 100 million to 1 billion, making the shares cheaper and more accessible to investors. But with EY’s departure, the “affordable shares” might not be the sell they once were.

Family Business (Literally)

To make things even more… interesting, Super Micro’s operations are a bit of a family affair. Founder and CEO Charles Liang runs the company alongside his wife, Sara Liu. But it doesn’t stop there. The business involves a network of relatives, from siblings to in-laws. Super Micro buys most of its servers from Ablecom Technology, a company run by Charles’s brother, Steve Liang. And Ablecom’s sales to Super Micro? Let’s just say they make up a “substantial majority” of Ablecom’s revenue. Talk about keeping it in the family.

And that’s not all. Super Micro also relies on another family-controlled entity, Compuware, for design and distribution in Taiwan, China, and Australia. It’s a tangled web of Liang relatives, and while Super Micro assures investors that it’s all above board, it’s certainly giving investors plenty to chew on.

So, What’s Next?

Despite all this, Charles Liang insists everything is fine and has invited investors to a business update call on November 5—Election Day, no less! But former SEC regulator Amy Lynch isn’t so optimistic, warning that Super Micro could soon face an investigation for potential accounting fraud.

With all this drama, it’s hard not to wonder: Are you brave enough to buy into Super Micro’s story?