markets

Yiwen Lu9/26/24

DOJ investigates Super Micro: report

It’s one thing when a short seller raises questions about your company. It’s another thing entirely when the US Department of Justice comes calling.

The Wall Street Journal reports that the DOJ is investigating former AI darling Super Micro Computer.

This came about a month after short-selling firm Hindenburg Research put out a report about the company’s questionable business practices, including accounting irregularities, and said that it would bet against the stock, shares tumbling. The next day, management announced a delay in the filing of its annual report because it need to reassess its accounting.

Shares of Super Micro are down about 13% on Thursday as of 11:30 a.m. ET, hitting their lowest level since January.

The DOJ’s probe appears to be related to a former employee’s lawsuit against Super Micro and its CEO over alleged accounting violations, according to the WSJ. That lawsuit was also referenced in Hindenburg Research’s report.

Super Micro sells servers that can handle AI workloads. Earlier this year, its shares skyrocketed amid the broader AI boom, rising more than 300% over the first three months of 2024. Now, the stock has fallen nearly 70% from its March peak.

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This came about a month after short-selling firm Hindenburg Research put out a report about the company’s questionable business practices, including accounting irregularities, and said that it would bet against the stock, shares tumbling. The next day, management announced a delay in the filing of its annual report because it need to reassess its accounting.

Shares of Super Micro are down about 13% on Thursday as of 11:30 a.m. ET, hitting their lowest level since January.

The DOJ’s probe appears to be related to a former employee’s lawsuit against Super Micro and its CEO over alleged accounting violations, according to the WSJ. That lawsuit was also referenced in Hindenburg Research’s report.

Super Micro sells servers that can handle AI workloads. Earlier this year, its shares skyrocketed amid the broader AI boom, rising more than 300% over the first three months of 2024. Now, the stock has fallen nearly 70% from its March peak.

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Server stocks are rallying as Dell, Super Micro Computer, and Hewlett Packard Enterprise ride the momentum of Hong Kong-based Lenovo. The PC maker’s stock rose 19% on Friday, hitting an all-time high, on record Q4 earnings.

Powering the positive earnings report was the company’s AI-related revenue, which grew 84% in the fourth quarter and now makes up over a third of total revenue. Investors seem to think the increased demand for servers could have trickle-down effects for other companies.

“The company’s results and commentary reinforced the outlook for strong AI-infrastructure demand while indicating resilient broader traditional server and storage spending,” wrote Woo Jin Ho, a senior technology analyst at Bloomberg Intelligence. “Lenovo’s $21 billion AI-server pipeline and remarks that demand is outpacing supply support Dell’s AI-demand momentum and point to robust orders.”

AI’s insatiable computing demand is reshaping the hardware industry and driving up server demand.

Dell will report first-quarter earnings on Thursday, May 28.

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Ross Stores surges as Q1 results beat expectations, full-year guidance raised

Ross shares are rising after the company delivered strong Q1 results, with sales topping Wall Street’s projections.

The stock soared 6.3% just after the open.

Key numbers:

Earnings per share of $2.02 vs. $1.47 year over year (estimate: $1.72).
Sales of $6.01 billion, up 21% year over year (estimate: $5.61 billion).
Comparable sales growth of 17% (estimate: 8.58%).

CEO Jim Conroy attributed the results to better traffic in stores. “Customer traffic was the primary driver of the strong sales trend as compelling merchandise assortments, higher customer acquisition and engagement from our ongoing marketing initiatives, and an improved in‑store experience are resonating with shoppers.”

The company also noted that transaction volume grew across all key demographics, including “income levels, ethnicities, and age groups, including younger customers.” Sales were also likely buoyed by standard seasonal tailwinds, including consumer spending from tax refunds.

Backed by the strong quarter, the company lifted its full-year targets. Ross now projects same-store sales growth of 6% to 7%, up from the prior forecast of 3% to 4%, topping Wall Street’s estimate of 4.64%. It boosted its annual EPS guidance to a range of $7.50 to $7.74, versus the prior outlook of $7.02 to $7.36.

Ross Stores has been one of the retail sector’s standout performers this year, rising around 20% year to date as of Thursday’s close.

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