District Super Micro Computer (NASDAQ: SMCI) shares got crushed today after reports that the company is under investigation by the Department of Justice (DoJ). The server specialist’s share price closed the day’s trade down 12.2%, and had fallen as much as 18.6% earlier in the session.
The Wall Street Journal it was reported today that the DoJ is in the early stages of conducting an investigation into Supermicro. According to the report, the investigation may be related to allegations of bad accounting practices made in short seller notes published by Hindenburg Research in late August.
After today’s big sell-off, Supermicro shares are now down 66% from the highs they reached earlier this year. Despite the price pullback, the company is still on track to proceed with the 10-for-1 stock split that will take effect on October 1.
Did Supermicro buy before the stock split?
Supermicro has come under some intense bearish pressure of late, but perhaps the negative sentiment surrounding the stock has been overblown. For starters, the DoJ has yet to announce a formal investigation into the company. Even if there is an investigation, this does not mean that there was anything inappropriate.
The Justice Department has generally been more aggressive about tech and financial companies lately, as it has launched antitrust lawsuits against companies including Apple, Alphabetand visa. Supermicro is unlikely to face antitrust scrutiny, but the DoJ’s recent activities provide some background context to keep in mind.
If the investigation into Supermicro by the DoJ is underway, Hindenburg’s allegations that he has found evidence of new accounting violations by the technology company could be a key catalyzing factor. But it is important to keep in mind that Hindenburg is a short seller, and profits when valuations for companies have placed bets on the decline.
The lack of visibility into the company’s prospects means that Super Micro Computer stock is not suitable for investors without an above-average risk tolerance. On the other hand, investors who are willing to accept risk and uncertainty can make great returns by treating the recent sales as a buying opportunity.
After the current stock pullback, Supermicro is now trading at just 12 times this year’s expectations and less than 85% of expected sales. Even with the expectation that the business will experience a cyclical moderation, this is a low price for a company that has experienced good sales and earnings growth due to demand driven by artificial intelligence (AI). If scores of tech specialists win with liquid-cooling technology that helps differentiate high-performance rack servers, Supermicro’s stock could push through new controversy and make a comeback.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions and recommends Alphabet, Apple, and Visa. The Motley Fool has a disclosure policy.
Super Micro Computer Plummeted Today — Should You Buy AI Stock Before the Stock Split on October 1st? this was originally published by The Motley Fool
