I wish I had continued shorting this AI darling

 SMCI was an AI darling! No question about it!! Just looked at the meteoric rise of its share prices in the past year, over 5 times within just a few months. Around its peak area, I had shorted it for a few times but but a quick in and out type of trades for some quick money. Since then I haven't touched it in the past few months. I wish I had kept my shorts in it all the time. 

See what has been happening for SMCI via the information below that I got from my friend.

On Tuesday, renowned activist short seller Nate Anderson of Hindenburg Research released this damning report on the company: Super Micro: Fresh Evidence Of Accounting Manipulation, Sibling Self-Dealing And Sanctions Evasion At This AI High Flyer. Excerpt:

• Super Micro Computer Inc. is a $35 billion server maker based in Silicon Valley, California that has ridden the wave of AI enthusiasm.

• Our 3-month investigation, which included interviews with former senior employees and industry experts as well as a review of litigation records, international corporate and customs records, found glaring accounting red flags, evidence of undisclosed related party transactions, sanctions and export control failures, and customer issues.

• 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.

• Less than 3 months after paying a $17.5 million SEC settlement, Super Micro began re-hiring top executives that were directly involved in the accounting scandal, per litigation records and interviews with former employees.

• A former salesperson told us: "Almost all of them are back. Almost all of the people that were let go that were the cause of this malfeasance."

• According to a lawsuit filed in April 2024, Super Micro waited only 3 months after the SEC settlement before restarting "improper revenue recognition," "recognizing incomplete sales," and "circumvention of internal accounting controls".

• Even after the SEC settlement, pressure to meet quotas pushed salespeople to stuff the channel with distributors using "partial shipments" or by shipping defective products around quarter-end, per our interviews with former employees and customers.

 

But then yesterday, the stock crashed 19% after the company announced that it wouldn't be filing its annual 10-K on time. Here's an excerpt from the press release:

SMCI is unable to file its Annual Report within the prescribed time period without unreasonable effort or expense. Additional time is needed for SMCI's management to complete its assessment of the design and operating effectiveness of its internal controls over financial reporting as of June 30, 2024.

Is it a coincidence? I'm not so sure...

There's a possibility that the delay is because the board and/or auditors aren't willing to take the risk of signing off on SMCI's numbers without thoroughly investigating what Anderson has uncovered.

Will he be proved correct that the company is once again cooking the books? Based on a quick look at SMCI's income and cash-flow statements, I suspect Anderson might be on to something...

Normally, these two statements move in the same direction: If a company is reporting growing sales and profits, its operating cash flows should also be growing.

 But you find the opposite direction of the two for SMCI. Only one word to describe it: weird!

 

We still don't know yet what has really happened with SMCI. But if it turns out that they are indeed cooking the book, then watch for another free fall for it! I wish bottom-fishing people can step in to make SMCI recover significantly in the next few weeks before the final shoe to fall. If so, I will definitely to short it again at a higher level.