Super Micro Computer plummets 34% as Ernst & Young resigns as auditor, questioning the company's governance and ethical integrity

The previously troubled AI hot stock Super Micro Computer saw its shares plummet by 34% at one point on Wednesday. Media reports indicated that Ernst & Young LLP resigned from its auditing role for Super Micro, citing concerns over the company's governance and transparency.

According to the 8-K filing submitted by Super Micro on Wednesday, Ernst & Young questioned the company's commitment to integrity and ethics, agreeing only to certain parts of the 8-K filing. In the resignation letter, Ernst & Young stated:

"We have decided to resign due to information obtained recently, which has led us to no longer rely on the representations of management and the audit committee, nor are we willing to associate with the financial statements prepared by management. We ultimately concluded that we cannot continue to provide audit services in accordance with applicable laws or professional obligations."

Super Micro stated that it disagrees with the accounting firm's decision and does not believe that "resolving any matters raised by Ernst & Young" would lead to a restatement of financial reports for the fiscal year 2024 or prior quarters, and has begun searching for a new auditing firm.

"The special committee has not yet received all relevant information required for the financial review, and the financial review has not yet reached a conclusion. Nevertheless, the company takes Ernst & Young's expressed concerns seriously and will carefully consider the committee's findings and any recommended remedies or other measures once the special committee reaches a conclusion."

This news caused Super Micro's shares to drop by as much as 38% in pre-market trading on Wednesday, with a maximum decline of over 34% after the market opened, before narrowing to around a 30% drop, closing at $33.92.

Last month, media reported that the U.S. Department of Justice had launched an investigation into allegations made by a former Super Micro employee claiming that the company violated accounting rules. The short-selling firm Hindenburg Research subsequently cited these allegations in a research report on Super Micro, claiming evidence of "apparent accounting fraud, undisclosed related-party transactions, sanctions and export control failures, and customer issues." Super Micro stated in August that it would delay the submission of its annual financial documents while a special committee assesses the internal controls over financial reporting.

Super Micro has previously had disputes with regulators over accounting practices. In 2020, the company paid a $17.5 million fine after being charged by the U.S. Securities and Exchange Commission (SEC) for prematurely and improperly recording revenue.

Hindenburg founder Nathan Anderson commented in a post on the X platform:

"Regarding the auditor's statement, the language in Ernst & Young's resignation letter is among the strongest I have ever seen."

Super Micro Computer sells high-performance servers for AI data centers, and demand for its products has surged amid the AI boom. Its clients include major players in the AI field such as Nvidia, AMD, and Intel. Earlier this year, the company's stock price quadrupled at one point. Since then, market enthusiasm has waned, and as of Tuesday's close, Super Micro's stock has risen about 73% this year