Chaos Strikes Supermicro (Again)
By Adam O'Dell
Chief Investment Strategist, Money & Markets
Banyan Nation,
It’s never good news when a company’s accounting firm quits because they’re “unwilling to be associated with the financial statements prepared by management.”
That’s what happened yesterday, when an 8-K filing disclosed that stalwart accounting firm Ernst & Young would no longer be working with Super Micro Computers (Nasdaq: SMCI).
Super Micro is one of the world’s largest producers of high-end computer servers — putting them on the cutting edge of a dozen different trends, from edge computing and cloud computing to high-performance computing (HPC).
But the company has also been plagued by scandal over the years…
In 2018, an article from Bloomberg revealed that China had forced Super Micro’s subcontractors to build in “backdoors” to servers that would later be sold to the CIA and the Department of Defense.
Then in 2020, the company was forced to settle with the SEC after violating accounting practices. Super Micro paid $17.5 million in penalties.
And earlier this year, a damning report from short-sellers at Hindenberg indicated that Super Micro was violating export restrictions by shipping advanced technology to Russia. The news led to a preliminary probe from the Department of Justice (which is still ongoing).
As a result, yesterday’s news wasn’t exactly shocking … but it was catastrophic for share prices.
As I write, SMCI is down nearly 50% in the last two days. And it’s likely to keep tumbling.
That’s coming after a bull run that saw the stock gain 1,388% between October of 2022 and this July.
So with an SMCI scandal back in the headlines (again), let’s take a closer look at the stock and how you could’ve used Green Zone Power Ratings to make a fortune — even if shares were bound to tumble…
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Edge Computing Powerhouse Emerges in 2022
The amount of data collected and processed today is massive.
And it’s only growing.
International Data Corporation projects the annual amount of data consumed worldwide will reach 181 zettabytes by 2025.
For reference: A zettabyte is 1 trillion gigabytes.
Data companies are looking for new ways to process massive amounts of data closer to home.
This is called edge computing.
Edge computing allows companies to process data much faster than if they have to access data from remote locations such as data centers.
Some of you may know it as “the cloud.”
The chart above shows the growth of the edge computing market from 2021 to 2030.
In 2021, estimates placed the market value at $40.5 billion.
By 2030, Precedence Research expects it to increase by 187.7%!
And back when my Chief Research Analyst Matt Clark started covering SMCI back in October of 2022, the company was leading the edge computing charge with a Green Zone Power Rating of 96/100:
Digging even deeper, Matt found some impressive fundamentals and a strong growth story. As he told readers of our free e-letter Money & Markets Daily at the time:
Processing and controlling data is big business.
Companies are looking for new ways to process large amounts of data faster.
Super Micro Computer is developing hardware to maximize the ability to handle data more efficiently.
This is one reason why SMCI stock is a great addition to your portfolio.
And he was right!
From the date of his initial stock report to his second follow-up earlier this year, SMCI gained nearly 1,400%! The stock outpaced even the “Magnificent Seven” that dominated returns through 2023.
But even as SMCI roared higher, Matt saw indicators that the rally was beginning to falter. SMCI’s rating had sunk from 96/100 to just 59/100.
Stating the obvious, Matt told readers in his follow-up that “now is not the time to buy into SMCI.”
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Staying One Step Ahead in the Green Zone
Every single time we invest, we’re balancing dozens of different variables in consideration…
Is the reward worth the risk?
Is this company a great long-term investment, or a short-term play I’ll need to keep an eye on?
Is this mega trend really going to pan out?
It’s hard to find a clear answer to these questions, especially in the case of a stock like SMCI.
Because on the one hand, you’ve got Super Micro’s checkered past. But on the other, you have the opportunity to rake in massive gains (if you know when to enter and exit the trade).
That’s precisely why I created my Green Zone Power Ratings system.
It automatically accounts for 75 different factors across six different categories and gives you an easy-to-read score from 1 to 100 that reflects a stock’s technical and fundamental viability. Anything over 80 is a strong buy.
SMCI’s score rocketed up to 96 long before the stock started to climb. But as share prices reached their apex (below in red), the stock’s rating (below in green) began to tumble — indicating that it was time to cash out:
SMCI’s Rating Sinks Before Shares
SMCI’s track record is yet another strong example of the power of investing systems.
By sticking to a consistent, systematic approach like Green Zone Power Ratings, you can cash in on gains like these (while avoiding major losses) and beat the market by 3X or more.
(For more on my ratings system and the tech stocks I’m recommending instead of SMCI, just go here)
To good profits,
Adam O'Dell
Chief Investment Strategist, Money & Markets
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