As the U.S. Q3 earnings season progresses, over one-third of U.S. companies have reported their third-quarter results. However, on the night of October 30, after U.S. markets opened, a “black swan” event struck an AI giant, causing its stock to plunge over 34%, marking the largest single-day drop since 2018. Meanwhile, Super Micro Computer's server competitor Dell Technologies saw a gain of over 6%, and Hewlett Packard Enterprise rose by over 2%. Semiconductor giant AMD also took a hit, with an intraday loss of over 10%, as its recent Q4 revenue outlook disappointed the market. This led to a broad decline in other chip stocks, with the Philadelphia Semiconductor Index down more than 3%. ASML and Qualcomm fell more than 3%, while NVIDIA, Micron Technology, and TSMC each dropped over 1% and 2%, respectively.

Source: uSMART SG

In other news, Super Micro Computer announced late at night that its auditor, Ernst & Young (EY), had resigned during the audit process. Previously, Super Micro had been embroiled in an accounting scandal, with Hindenburg Research, a renowned global short-seller, accusing the company of “accounting manipulation” in late August. Although Super Micro denied the allegations, calling them “false or inaccurate,” the U.S. Department of Justice launched an investigation into Super Micro about a month later, leading to a significant hit to its stock price.

Source: Super Micro Computer announcement

EY’s statement read: “We recently became aware of certain information that has led us to conclude we can no longer rely on the representations of management and the audit committee. Therefore, we are unwilling to be associated with the company’s financial statements as prepared by management and conclude we are unable to provide audit services in accordance with applicable laws or professional obligations.” This implies that EY, which had been conducting the financial audit, abruptly stepped down. EY was initially appointed as Super Micro’s auditor early last year, and the 2024 fiscal year would have been its first complete annual audit for the company.

As one of the hottest AI stocks in recent years, Super Micro has seen sharp fluctuations, but a drop of over 20% is rare. The plunge on October 30 marked its steepest fall in six years, second only to a 41.12% drop on October 4, 2018. That decline in 2018 was also due to a financial investigation, which ultimately led to the company’s delisting. Super Micro re-listed in 2020 after paying a $17.5 million fine and settling with the U.S. Securities and Exchange Commission.

Previously, Super Micro had already attracted the attention of short-sellers. On August 28, Hindenburg Research published a short report on Super Micro, alleging that the company, which had a prior record of financial misconduct, was continuing to engage in improper revenue recognition, related-party transactions, sanctions avoidance, and other corporate governance issues. This report led to two key developments: first, Super Micro announced a delay in releasing its 10-K annual report for the 2024 fiscal year (from July 1, 2023, to June 30, 2024); second, the U.S. Department of Justice initiated an investigation into the company a month later. Both announcements led to a sharp decline in Super Micro’s stock.

Some Wall Street analysts suggest that if related-party transactions and financial misconduct are confirmed through the investigation, Super Micro may face the same delisting fate it experienced in 2018.

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