Why Hindenburg Research is betting against AI stock market darling Super Micro
The short selling firm alleges accounting irregularities, questionable governance, and even sanctions evasion.
An AI stock market darling is the newest target of Hindenburg Research.
Super Micro Computer was down as much as 8.7% in early trading on Tuesday before paring about half of those losses by 10am ET after the short-selling firm released a report detailing why it’s betting against the stock.
Demand for SMCI’s severs has skyrocketed amid the AI boom, but Hindenburg says underneath that lies a company with a dodgy accounting history, questionable business ties, and even sanctions evasion.
It’s another question mark that threatens to upend what’s been largely an AI-dominated stock market rally in 2024, which faces a big test with Nvidia reporting earnings on Wednesday.
Heading into Tuesday’s session, Super Micro Computer was the third-best performing stock in the S&P 500 this year, with its 98% gain trailing only Nvidia and Vistra. The bloom is already arguably off the rose, however: shares of the company had risen more than 300% in less than three months to start 2024.
The entire report is worth a read. But we’ve picked out some of the most striking claims made by Hindenburg below.
Potential accounting irregularities?
In 2018, Super Micro was temporarily delisted from Nasdaq for failing to file financial statements. By August 2020, the company was charged by the SEC for “widespread accounting violations,” mainly related to $200+ million in improperly recognized revenue and understated expenses, resulting in artificially elevated sales, earnings and profit margins…
Three senior employees who left in early 2018 amidst the accounting scandal were rehired, individually serving as (1) a member of the board of directors (2) a consultant serving close to the CEO (3) and a VP of business development.
Keeping it in the family?
Beyond fresh questions around its revenue accounting, we found that Super Micro’s relationships with both disclosed and undisclosed related parties serve as fertile ground for dubious accounting.
For example, disclosed related party suppliers Ablecom and Compuware, controlled by Super Micro CEO Charles Liang’s brothers, have been paid $983 million in the last 3 years. Ablecom is also partly owned by Super Micro CEO Charles Liang and his wife…
Super Micro has claimed its liquid cooling technology will “revolutionize the industry” and is its “competitive edge.” But at a recent industry conference, Super Micro featured related party Ablecom’s liquid cooling solutions, per an Ablecom engineer.
Ablecom has several patents for its liquid cooling technology. Despite this, Super Micro has never disclosed any related party involvement in its liquid cooling technology.
Behind enemy lines?
When Russia invaded Ukraine in February 2022, the U.S. government imposed stringent restrictions and bans on exports to Russia of high-performance computers and components…
Exports of Super Micro’s high-tech components to Russia have spiked ~3x since the invasion of Ukraine, apparently violating U.S. export bans, according to our review of more than 45,000 import/export transactions.
At least 46 companies that handled Super Micro products to Russia since the invasion are now under OFAC sanctions or on U.S. government watchlists.
In addition, the firm flagged perceived quality shortcomings that they say has caused the likes of Nvidia, Tesla, Amazon to turn away from Super Micro’s products.
Per exchange data, short interest as a percent of shares outstanding has jumped from below 6% in mid-April to above 15% by mid-August, with the bulk of that increase in bearish bets coming over the past month.
