Down 78%, is this once-hot AI growth stock set to explode like the Rolls-Royce share price?

Our writer asks if he should invest in Super Micro Computer (NASDAQ:SMCI) following the growth stock’s massive recent decline.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Until recently, it was all going swimmingly for Super Micro Computer (NASDAQ: SMCI). The growth stock joined the prestigious S&P 500 in March, by which point it had surged by a staggering 6,600% in five years.

Then everything started unravelling for the IT infrastructure company. As I write, the share price has lost 78% of its value in just eight months. Talk about a fall from grace!

Created with Highcharts 11.4.3Super Micro Computer PriceZoom1M3M6MYTD1Y5Y10YALL5 Nov 20195 Nov 2024Zoom ▾Jan '20Jul '20Jan '21Jul '21Jan '22Jul '22Jan '23Jul '23Jan '24Jul '242020202020212021202220222023202320242024www.fool.co.uk

However, Rolls-Royce stands as a powerful example of what’s achievable through a successful turnaround. The FTSE 100 engine maker was on the brink of bankruptcy during the pandemic, yet it survived and is now thriving. The stock’s soared 1,300% in four years!

Should you invest £1,000 in Super Micro Computer right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Super Micro Computer made the list?

See the 6 stocks

Might such an epic rebound be on the cards for Super Micro stock at some point? Here are my thoughts.

Incredible growth

For those unfamiliar, the company makes hardware for data centres and artificial intelligence (AI) applications. Its energy-efficient servers (often packed with Nvidia‘s chips) have seen incredible demand as the generative AI revolution has exploded globally.

We can see this in Super Micro’s revenue, which more than doubled to $14.9bn last year.

Created at TradingView

Omnishambles

So why have the wheels come off? The reasons are almost too numerous to list. But starting in August, the firm said it wouldn’t be able to file its audited annual report on time. That’s obviously never a good sign.

Then an explosive report from short seller Hindenburg Research was published. In this, it made a number of serious allegations against Super Micro. The main ones were:

  • Accounting manipulation
  • Rehiring of top executives who were directly involved in past accounting scandals at the firm
  • Significant undisclosed business dealings with companies controlled by the CEO’s family members
  • Continuing to do business with Russia, violating US sanctions

Last month, it was reported that the US Department of Justice is in the early stages of investigating the company. Oh, and the Nasdaq is also threatening to delist the stock due to the missing annual report.

And as if all that wasn’t enough, Super Micro recently disclosed that Ernst & Young has resigned as its auditor (after just 17 months).

Should I buy Super Micro stock?

Now, it needs to be stated that Super Micro denies all these allegations. Also, Hindenburg Research is a short seller, which means it borrows shares and sells them, hoping to buy them back later at a lower price after a scathing report (pocketing the difference as profit). So it benefits from the stock’s decline.

Of course, it’s always possible for Super Micro to turn things around. A new auditor and management could stabilise things, while revenue and earnings may well continue to climb higher due to growing AI demand.

Moreover, the stock appears dirt cheap, trading at a mere 7 times forecast earnings for this financial year. So I wouldn’t totally rule out a big share price recovery.

However, I want no part of this. Reports say that Nvidia has started to route orders away from Super Micro due to these alleged accounting issues. If so, that could seriously impact future growth.

Moreover, on announcing its resignation, Ernst & Young said it was “unwilling to be associated with the financial statements prepared by management“. Yikes!

There’s far too much uncertainty here for me. Therefore, I’ll invest elsewhere in November.

5 stocks for trying to build wealth after 50

The cost of living crisis shows no signs of slowing… the conflict in the Middle East and Ukraine shows no sign of resolution, while the global economy could be teetering on the brink of recession.

Whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times. Yet despite the stock market’s recent gains, we think many shares still trade at a discount to their true value.

Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…

We’re sharing the names in a special FREE investing report that you can download today. We believe these stocks could be a great fit for any well-diversified portfolio with the goal of building wealth in your 50’s.

Claim your free copy now

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Ben McPoland has positions in Rolls-Royce Plc. The Motley Fool UK has recommended Nvidia and Rolls-Royce Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Prediction: 12 months from now, £5,000 invested in Tesla stock could be worth…

Tesla stock has endured a miserable year so far, falling by 29%. Muhammad Cheema takes a look at how it…

Read more »

Investing Articles

See what £10,000 invested in Tesla shares at their mid-December peak is worth today 

As the world absorbs the full scale of Donald Trump's tariffs, Tesla shares are reeling. Investors who bought the stock…

Read more »

Hand flipping wooden cubes for change wording" Panic " to " Calm".
Dividend Shares

2 ‘safe’ LSE dividend stocks to consider as global markets sell off

As global markets experience high levels of volatility due to economic uncertainty, investors are piling into these ‘safe-haven’ dividend stocks.

Read more »

Investing Articles

US stock market rout: an unmissable opportunity for investors?

His tech-heavy portfolio has been smashed by Trump’s tariffs. However, Dr James Fox believes there could be some opportunities in…

Read more »

Investing Articles

After a 13% ‘Trump tariff’ fall, is the Barclays share price too cheap to miss?

Does the Barclays share price fall mean we should all panic and run screaming from the stock market? Nah, of…

Read more »

Mature Caucasian woman sat at a table with coffee and laptop while making notes on paper
Investing Articles

2 investment trusts to consider for a Stocks and Shares ISA

These two investment trusts have a different focus -- but our writer sees both as worth considering, one more for…

Read more »

Investing Articles

Deutsche Bank reiterates Buy rating on 9.6% yielding FTSE 250 stock that was “most shorted in UK”

Our writer investigates why a major broker remains optimistic about a FTSE 250 stock that was once the most shorted…

Read more »

Investing Articles

2 things to remember when stock markets are turbulent

US trade policy has rattled the stock markets in New York, London and elsewhere. Our writer outlines a couple of…

Read more »