Super Micro computer stocks are down 30%. Here’s what you need to know before buying or selling.

Super Micro Computer (SMCI 4.31%) started the year with a bang. The company’s stock surged 188% in the first half, outperforming even the market darling Nvidiaand was invited to join both S&P500 and Nasdaq-100. And for good reason. The hardware maker’s profits have skyrocketed thanks to demand from artificial intelligence (AI) customers.

The company sells workstations, servers and other products necessary for AI data centers. Given the AI ​​market’s growth projections – today’s $200 billion market is expected to reach $1 trillion by the end of the decade – the future also looks bright. However, several recent news weighed on the company and its shares have fallen by almost 30% since the end of August.

From a short report about the company’s problems to an article in… Wall Street Journal regarding a possible Justice Department investigation, Supermicro has been struggling recently. So if you are a shareholder or potential shareholder, you may be wondering what to do. Before you buy or sell, here’s what you need to know.

Hindenburg Report

The Hindenburg Research short report was published on August 27. After a three-month investigation, Hindenburg alleges “red flags in accounting,” “evidence of … failures in export controls” and other problems at Supermicro.

It is important to note that Hindenburg has a short position on Supermicro stock, which means it benefits from any declines in the share price. In a short sale, an investor borrows shares of a particular company, sells them, and then ideally buys them back at a lower price to return them to the original owner. Because of this stance, Hindenburg is positioned for share price declines, making it difficult to rely on the company as a source of information.

Supermicro responded to the report, calling the claims “false or inaccurate” and saying it would address them “in due course.”

In unrelated news, but around the same time as the Hindenburg report, Supermicro informed the market that it was delaying the filing of its $10,000 annual report. companies – which has made some investors concerned about potential changes in earnings data. However, Supermicro added that it does not expect any significant adjustments to its fourth-quarter or full-year results.

A new element of uncertainty

Comments on both of these issues should reassure investors. But the third message, added last week, carried another element of uncertainty. Wall Street JournalCiting people familiar with the matter, it said the Justice Department had launched an investigation into Supermicro following the Hindenburg report.

The probe is still in its early stages WSJ said a prosecutor from the U.S. attorney’s office in San Francisco recently contacted people who may have “material information.” Supermicro and the U.S. attorney’s office declined to comment Journal he said.

Following this news report, Supermicro’s shares fell 12% in one trading session.

So now you may be wondering whether this leading AI hardware maker is really in trouble and whether you should stay away from the stock or sell. You may also be wondering, given the recent decline in valuations, whether this is an opportunity to start a recovery at a good price.

Take a long-term view

Well, first, it’s important to remember that the Department of Justice investigation hasn’t been substantiated – and even if it is substantiated, it doesn’t mean Supermicro did anything wrong. And if we imagine a more difficult scenario where an investigation is conducted and potential problems are discovered, it doesn’t necessarily spell disaster in the long run. Therefore, it is important to follow history and take a long-term perspective when considering all events – positive or negative.

And if you are a shareholder, avoid selling in a panic. Consider the facts and reconsider the impact they may have on your business over the next five to ten years. Right now, from what we know, Supermicro’s future remains bright. The company has a solid track record of earnings growth, its products are in strong demand, and the growth of the artificial intelligence market suggests that Supermicro’s earnings growth could continue for an extended period of time.

If you are not yet a shareholder, should you buy shares or wait? Very aggressive investors may consider this a good time to buy some shares of Supermicro, as it is trading at around 11 times forward earnings estimates, which is very cheap for a growth stock.

Still, most investors would prefer to stay on the sidelines – temporarily – until we learn more about the current issues. Finally, Supermicro said that it would respond more closely to the statements contained in the Hindenburg report, and these words may reassure investors.

All of this is to say that yes, there are reasons to be optimistic about Supermicro over the long term, but given some of the uncertainty weighing on the stock right now, it might be best to wait until some of these clouds have cleared before buying.