Making sense of market moves
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Not much has been able to slow AI hardware’s ascent over the past two years.
Take a look at shares of data center firm Super Micro, which buys components from Nvidia: They’ve doubled this year…after tripling in 2023.
But reaching new heights means there is further to fall. Super Micro’s stock dropped 2.64% today after activist research firm Hindenburg disclosed a short position and published a detailed report that alleged accounting red flags, mismanagement, and undisclosed conflicts of interest.
Here’s what Hindenburg said following a three-month investigation:
- Super Micro allegedly rehired executives who were involved in accounting violations that caused the company to be fined $17.5 million by the SEC in 2020. Super Micro had been delisted from the Nasdaq in 2018 due to financial statement reporting issues.
- The company has dubious relationships with suppliers, Hindenburg claims. “In addition to the concerns around the disclosed related parties, we found evidence of undisclosed related parties. The youngest brother of Super Micro’s CEO owns two Taiwan-based entities that make server components. Media reports and former employees indicate the entities are Super Micro suppliers,” Hindenburg wrote.
- Hindenburg claims that Super Micro has faced sanction and export control violations.
- “It benefitted as an early mover but still faces significant accounting, governance and compliance issues and offers an inferior product and service now being eroded away by more credible competition,” Hindenburg wrote.
When reached for comment by Brew Markets, a Super Micro spokesperson wrote, “The Company does not comment on rumors and speculation.”
While Super Micro is up 94% this year, shares have fallen 23% in August, and the stock is having its worst month since October 2018 due to shrinking profit margins revealed in its Q2 results. The majority of analysts have a “hold” rating on the stock.
What is Hindenburg Research, anyways? The seven-year-old company is an activist short-seller. Unlike activist hedge funds that take stakes in struggling firms and launch a pressure campaign to gain board seats and at times push out leadership, Hindenburg shorts its targets (bets on their stock to fall) and releases reporting about flaws in their business models or allegations of mismanagement.
Hindenburg has previously shorted companies like Equinix, Adani Group, and Carl Icahn’s Icahn Enterprises. Companies often refute claims made by the firm, but Hindenburg still holds a lot of influence. Just last week, the SEC fined Icahn $2 million for a disclosure violation that was first raised by a Hindenburg report.—LB