Super Micro, which provides enterprise AI infrastructure, stands out as a negative outlier in 2024’s artificial intelligence market. The firm reported underwhelming Q3 figures with more legal trouble on its horizon.
The firm’s stocks dropped a whopping 24%, closing at an almost 18-month low. It reported a revenue of about $6 billion for the third quarter, which falls below the projected $7 billion. Super Micro’s financial struggles come at a time when other AI companies have recorded massive profits.
Super Micro’s underwhelming Q3 figures
Super Micro’s investors are wary after the company’s shares plummeted by 24% before settling at its lowest point in 18 months. These fears have come due to the delay in the release of its annual report, weak earnings, and an investigation by the Department of Justice.
The company had previously reported significant growth thanks to the AI boom. However, it has since been on a steady decline due to allegations of accounting fraud.
The Department of Justice launched a probe into the company following reports of accounting violations, which raised concerns about accounting integrity. Also, in late August, its annual fiscal report was delayed due to concerns about internal controls on financial reporting.
Super Micro had previously received a notice from Nasdaq stating that the company wasn’t in compliance with a Nasdaq rule. In a post on X (formerly Twitter), the founder of Hindenburg, Nate Anderson suggested that the company lacks integrity and ethical values.
Ernst & Young (EY), one of the Big Four accounting firms, was supposed to audit Super Micro. However, in an unexpected turn of events, the firm resigned. EY said it did not want to be associated with Super Micro’s financial statements.
EY had previously raised issues with the audit committee, highlighting concerns about transparency, governance practices, and completeness of information shared with them. The EY statement noted that “due to information that has recently come to our attention which has led us to no longer be able to rely on management’s and the Audit Committee’s representations.”
Super Micro formed an independent committee, which found no evidence of fraud or misconduct. It also reported that the Audit Committee acted independently.
Super Micro missing out on opportunities within the AI industry
As Super Micro’s struggles are highlighted in its Q3 figures, other players in the AI market continue to see significant investment and increases in share values.
For instance, the AI chip maker TSMC had a strong performance in Q3 with revenue of over $23 billion. The reported figures indicate the growing demand for hardware that can power AI solutions. However, hardware isn’t the only fast-rising aspect of the AI market.
Perplexity AI, an AI-powered search engine, is set to raise $500 million, raising its valuation to $9 billion. AI-driven data analytics company Palantir Technologies also had a great Q3 report, generating a revenue of $725 million, which is about a 30% increase from the previous year. Even the popular and often infamous OpenAI raised $6.6 billion in a round last month, sending its valuation up to $157 billion. The latest capital raise round made it one of the most valued companies in the world.
The AI sector is filled with opportunities. However, if Super Micro does not satisfactorily address concerns about its accounting practices and sort out all regulatory issues, its shares could continue to tank.
