Super Micro Plunges Nearly 5% After Internal Audit Red Flags Surface

Internal audit woes hammer Super Micro stock as investors flee regulatory uncertainty

Accounting Shadows

Super Micro's nearly 5% nosedive follows revelations of internal control failures—the kind that make compliance officers break out in cold sweats. The server manufacturer's audit complications triggered instant sell-offs among institutional holders who've seen this movie before.

Market Reaction

Trading volume spiked 300% above average as the news hit terminals. Short sellers piled in within minutes, smelling blood in the water around accounting irregularities. The drop erased roughly $400 million in market cap—poof, gone faster than a crypto trader's margin.

Regulatory Fallout

Watch for SEC subpoenas and potential class actions if this develops legs. Internal audit issues rarely travel alone—they bring friends like restatements and delayed filings. Super Micro now faces the classic tech dilemma: innovate faster than regulators can investigate.

Because nothing says 'robust financial controls' like needing your own auditors to audit your auditors.

SMC delayed releasing its annual financial report

The San Jose, California-based firm failed to meet its August 2024 annual report filing deadline, leading Ernst & Young LLP to resign as auditor in October over governance and transparency concerns. The firm later submitted the overdue filing in February. This made its shares rise 23% in premarket trading.

However, on Thursday, in its annual filing with the US regulator, it stated that it had concluded that its internal control over financial reporting was ineffective as of June 30, 2025, due to material weaknesses in such controls.

So far, shares of Super Micro had surged 88% in 2025 on AI Optimism before dropping 23% after the Aug. 5 revenue forecast revision, leaving them with a year-to-date gain of 44% at Thursday’s close. Moreover, the firm’s shares dropped nearly 5% on Friday, risking more than $1 billion of its $26 billion or so in market value if the decline continues.

The company, however, said in its filing that it was working to address the issues, but added that it can’t assure investors that there won’t be more issues found with its internal control over financial reporting in the future.

On a forward 12-month earnings estimates basis, Super Micro trades at 16.28 times, compared to Dell’s 13.12 times and Hewlett Packard Enterprise’s 10.81 times. Among the 19 brokerages covering the company, seven rate it a “buy,” nine a “hold,” and three a “sell,” with a $49 median price target, LSEG data show.

Dell’s shares also fell about 10% on Friday, with increased manufacturing costs for AI servers and growing competition against its upbeat outlook for AI infrastructure.

Super Micro conducted a probe into its operations

Super Micro reported in December that an independent probe had not identified misconduct. Also, the firm promised leadership changes, including a new chief financial officer. The investigation was led by a board-appointed committee, assisted by attorneys from Cooley LLP and specialists from Secretariat Advisors.

The investigation also examined the resignation of Ernst & Young, the company’s former public accounting firm, concluding that the firm’s statements about its departure were “not supported by the facts” revealed in the review.

In response, Super Micro Computer reaffirmed its commitment to strengthening operations in line with its rapid expansion, especially in the AI sector. Furthermore, the committee emphasized that the firm’s leadership maintained an “appropriate tone at the top,” showing their commitment to compliance and accurate financial reporting.

However, the company still flagged possible risks, including difficulties in winning back business or opportunities lost to reputational setbacks. CEO Charles Liang said earlier this month that the filing delays had somewhat hurt the business.

In March, Super Micro said it began taking steps to improve its internal financial controls. The company said it had made progress, though the rollout was still underway and further time was required to complete and validate the changes.

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