Justice Dept Probe Sinks Supermicro Stock; Nvidia Swings

On Thursday,September 26th,before the midday trading session on Wall Street,following the release of a short-selling report by Hindenburg Research,the US Department of Justice is investigating "AI stock darling" and server manufacturer Super Micro Computer,with the investigation being in its initial stages.

This news caused Super Micro Computer's stock to plummet rapidly,turning from a 5.7% increase at the start of trading to a decline,and the stock was temporarily halted several times due to excessive volatility.The Philadelphia Semiconductor Index's gains,which started at 4.4%,were once narrowed to less than 1%.

When Super Micro Computer resumed trading,its stock price fell by as much as 18.6%,marking the largest drop in nearly a month and approaching the eight-month low set on September 6th.Popular chip stocks also dived,with Nvidia turning from a 3.4% increase at the start of trading to a 1% decline.

The initial rally in chip stocks was mainly boosted by Micron Technology's earnings report after the market closed on Wednesday,which showed strong AI demand.

According to informed sources,a prosecutor from the US Federal Prosecutor's Office in San Francisco recently contacted some individuals seeking information about a former employee who accused Super Micro Computer and its CEO of accounting violations in April of this year.

At the end of August,Super Micro Computer applied to delay the submission of its 10-K annual report for the fiscal year 2024 to the US Securities and Exchange Commission (SEC),stating that all parties were working hard to complete the assessment.A few days before this application,Hindenburg Research released a short-selling report on the company,claiming a series of issues such as "evidence of accounting manipulation,undisclosed related-party transactions,violation of export bans,and customer loss."

Regarding the short-term stock price dive of Nvidia,some social media users said that Nvidia's third-largest customer,Super Micro Computer,is under investigation by the Department of Justice for "accounting irregularities," making it hard not to associate the negative news with Nvidia."If true,this will confirm that Nvidia's supplier financing/round-trip financing is collapsing."

Hindenburg Research's short-selling report also mentioned the allegations made by former Super Micro Computer employee Bob Luong,who in a "whistleblower lawsuit" stated that Super Micro Computer fired several employees related to past accounting irregularities and then rehired them.Bob Luong,who served as the "General Manager providing guidance to the global service team," was fired in April last year.

He also accused Super Micro Computer of improperly recognizing revenue for fiscal years 2020 to 2022 in certain situations.For example,in some cases,the company recorded sales revenue that had not yet been completed,and another method of recognizing revenue early was "shipping to certain customers and charging for incomplete equipment that was not yet ready for sale."

In addition,Hindenburg's short-selling report also questioned related-party transactions between Super Micro Computer and other companies operated by CEO Charles Liang's family and violations of US sanctions against Russia after the outbreak of the Russo-Ukrainian conflict.The CEO of Advanced Micro Devices (AMD) wrote to customers on September 3rd,stating that the short-selling report "contains false or inaccurate statements about our company," and he does not anticipate any significant changes to the previously released financial performance for the fiscal year 2024.It has been reported that AMD has applied to the court to stay the lawsuit by Bob Luong and to submit his claims to arbitration.In 2020,AMD paid $17.5 million to settle the SEC's allegations of widespread accounting violations,and the company's CEO also settled with the SEC,returning $2.1 million in stock sale profits to the company.However,neither the company nor the CEO were charged with any misconduct.

It is worth noting that AMD announced in early August that it would implement a 10-for-1 stock split plan effective October 1st.This decision was primarily due to the rapid increase in the company's stock price over a short period,making it "too expensive" and thus less attractive for new purchases.After the split,the stock would be more accessible.From the beginning of 2023 to March of this year,the stock price had risen by as much as 14 times at its peak,with the company's market value reaching $66 billion.

The US stock research and investment firm,The Motley Fool,pointed out that since hitting a new high in March,AMD's stock has depreciated by nearly 70%.The continuous selling may be due to the mixed financial reports and the Hindenburg short-selling report: "The substantial capital expenditures have significantly dragged down the company's gross margin,leading to concerns about its liquidity and long-term profitability.However,the management described the deterioration in profit margins as a short-term issue related to the launch of new products and supply chain problems."