Shares of Super Micro Computer (NASDAQ: SMCI) were once again tumbling after the company provided investors with an update on its fiscal first-quarter results, as well as its current audit and filing process. Supermicro was a huge winner early in the year, with its stock quadrupling within the first three months of 2024. However, its shares are now solidly in negative territory year to date after this latest dip.

Let’s take a closer look at Supermicro’s latest wows and consider what investors should do with the stock.

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In an update to investors, Supermicro said it now expects its fiscal Q1 sales to be in the range of $5.9 billion to $6.0 billion. Earlier guidance was for revenue to be between $6 billion and $7 billion. While clearly a disappointment, it is notable that last year, the company produced revenue of $2.1 billion. So even with the lowered expectation, revenue will still nearly have tripled year over year.

Supermicro is now looking for adjusted earnings per share (EPS) to be in a range of $0.75 to $0.76, down from its prior guidance range of $0.67 to $0.83. That would be up from $0.34 a year ago when adjusting for the stock’s earlier 10-for-1 stock split.

Gross margins, which were a big issue for the company last quarter when they slipped to 11.2% from 15.5% in the fiscal third quarter and 17% a year ago, were projected to come in at 13.3%. This is a sequential improvement that moves it back closer to its more historic 15% to 17% range. However, this is very much a low-margin business. Chip companies like Nvidia and Broadcom have gross margins closer to 75%.

Looking ahead to its second fiscal quarter, Supermicro forecast revenue to come in between $5.5 billion to $6.1 billion, with adjusted EPS of between $0.56 to $0.65. A year ago, the company recorded fiscal Q2 sales of $3.66 billion and adjusted EPS of $0.56 split adjusted.

As for its accounting, Supermicro said that the Special Committee it formed found no evidence of fraud by management, but that it will issue some remedial measures to help the company strengthen its internal governance and oversight functions. However, the company is unable to determine when it will file its 10-K annual report, which was due on Aug. 29.

With the company not currently able to file its annual report, the stock is at risk of being delisted by the Nasdaq. The stock exchange sent Supermicro a letter of non-compliance on Sept. 17, and it has 60 days to file or submit a plan to regain compliance. At the moment, it appears the stock is in serious danger of getting delisted, since the company does not even currently have an auditor after Ernst and Young recently resigned.

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Supermicro was previously delisted in 2019 after being unable to file its annual report in a timely matter over accounting issues, before being relisted in 2020. If its shares were to get delisted again, the stock would then trade in the over the counter (OTC) market. A delisting could also mean the stock would get kicked out of the S&P 500, which it just recently joined.

Supermicro is a real business that has been greatly benefiting from the artificial intelligence (AI) infrastructure boom. However, there are currently a lot of questions surrounding its accounting, with its auditor resigning and the SEC previously having found the company guilty of stuffing the channel.

Outside of the potential accounting issues, the one big risk to the company is if the shadow cast on it by this leads to customers looking to do business elsewhere. While benefiting from the AI infrastructure buildout, it is in a low-margin business that has plenty of competition.

According to a report from DigiTimes Asia, Nvidia has stepped in and diverted orders away from Supermicro given the cloud surrounding the company. If suppliers and customers decide to do less business with Supermicro, it will likely affect the company a lot more in the long run than a fine from the government.

While investors could consider taking a flyer on the stock given how beaten up it is, I think it is best to remain on the sidelines given all the uncertainty and risk surrounding the stock. There are just better ways to play the AI infrastructure buildout.

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Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.

Super Micro Computer Shares Fall Again on Latest Update. Is the Bottom In, or Is There More Downside Ahead for the Stock? was originally published by The Motley Fool