Super Micro Faces Potential Delisting, S&P 500 Removal Amid Auditor Woes

(Bloomberg) -- Super Micro Computer Inc. started the year as a hot artificial intelligence trade. But just eight months after shares hit a record high, investors are asking whether the server maker will be delisted by Nasdaq Inc. and booted from the S&P 500.

The troubled firm — which has seen shares plummet more than 75% since March — is due to give a business update on Tuesday after the close. Top of mind is what it says about meeting Nasdaq Inc.’s compliance obligations following the resignation of auditor Ernst & Young LLP last week. The auditor cited concerns about Super Micro’s commitment to integrity and ethics — a blow that follows a US Department of Justice probe and a damaging short-seller report earlier this year.

The stock was up 1.2% midday in New York after reversing an earlier loss. Options data signal that traders see shares moving as much as 20% in either direction after the company’s business update.

Super Micro’s listing status was already looking shaky after it failed to file its annual 10-K report by an August deadline. Nasdaq rules give the company until mid-November to submit a plan to restore it to compliance, and if that plan is approved, it could get extra time — pushing the deadline to February 2025. But the resignation of Ernst & Young makes that more challenging.

“I think that they probably end up getting delisted just because of the timelines involved,” Wedbush analyst Matt Bryson said in an interview. “How do they get their 10-K out in just a few months when they don’t have an auditor and their last auditor resigned?”

Representatives for Super Micro, Nasdaq and S&P Global, which owns the S&P 500 Index, declined to comment.

A Nasdaq delisting would be the latest development in a tumultuous year. Super Micro shares were flying high at the start of 2024, with Wall Street enthusiastic about AI-fueled demand for its high-powered data center servers, and the company winning inclusion in the S&P 500. But investors have been bailing as issues pile up, with the 10-K filing delay followed by news that regulators are looking into an ex-employee’s claims that the company sought to overstate its revenue.

At the time of Ernst & Young’s resignation, Super Micro said it doesn’t expect the issue to lead to restatements of previously issued financial reports, and that it has begun the process of identifying another auditor.

But some analysts are more wary. “We now believe there is meaningful risk that prior financial statements may have to be restated once a new public accounting firm is hired,” Needham analysts led by N Quinn Bolton wrote last week, suspending coverage on Super Micro shares.

A Nasdaq delisting could also trigger removal from the S&P 500 — leading to forced selling of the shares by institutions, according to Bloomberg Intelligence analysts led by Woo Jin Ho. He added that about 24% of Super Micro’s shares are held in passive funds, and about 8% are owned by S&P 500-related funds.

It wouldn’t be the first time that Super Micro has been delisted. The company was delisted in 2019 after failing to meet deadlines to file a 10-K and several quarterly reports. It got approval to rejoin in 2020. The same year, Super Micro resolved an investigation by the US Securities and Exchange Commission into its accounting by paying a $17.5 million penalty. Super Micro didn’t admit to or deny the regulator’s allegations as part of its settlement.

Wedbush analyst Bryson noted that the last time Super Micro was delisted, growth stalled for two years. Customers can be spooked by financial issues because it may suggest disruption in the company’s ability to deliver products in a timely way, he added.

Bloomberg Intelligence’s Jin Ho agrees. “While any impact on sales won’t be immediate, risks for order cancellations will grow given the rising number of alternative rivals to its still-dominant position in AI servers for data centers,” he wrote.

Dell Technologies Inc. could be a potential beneficiary, he added.

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