Why Shares of Super Micro Computer Stock Collapsed This Week

Shares of Super Micro Computer (SMCI 33.18%) collapsed 28.1% this week, according to data from S&P Global Market Intelligence. The data center component assembler is caught in the middle of an illegal scheme to export computer chips to China, with its co-founder at the center of the story.

As of 12:50 PM EST on Friday, March 20th, Super Micro Computer stock is down 28.1% in the last week and 81.5% from all-time highs. Here’s why it was falling, and whether now is the time to buy the dip for your portfolio.

Today’s Change

(-33.18%) $-10.21

Current Price

$20.57

Billion-dollar export scheme for AI chips

Super Micro Computer takes advanced computer chips for artificial intelligence (AI) and assembles them into supercomputers to sell to AI data centers. One of its largest customers is Nvidia, whose advanced computer chips are restricted from being sold to China.

It turns out that one of Super Micro Computer’s co-founders and a current board member, Wally Liaw, was involved in a scheme to secretly sell $2.5 billion worth of computer chips to China. These are allegations made by the United States Department of Justice (DOJ), claiming that Liaw worked to deliberately bypass sanctions imposed for national security reasons.

While Super Micro Computer is not mentioned in the indictment, investors are clearly fearful that the company allowed this to happen, either purposefully or negligently, on its watch. What’s more, this raises questions about the sustainability of Super Micro Computer’s $28 billion in annual revenue. These allegations were also made by short seller Hindenburg Research almost two years ago, adding even more fuel to the bearish sentiment around the stock.

A tablet a hand is touching with digital elements flowing up its forearm.

Image source: Getty Images.

Should you buy the dip on Super Micro Computer?

Right now, Super Micro Computer stock looks cheap, with a price-to-earnings ratio (P/E) of just 16. This would be a misleading way to look at the business, though. Super Micro Computer is likely to face significant fines and potential criminal probes into other parts of its management team, along with revenue losses stemming from illegal sales funneled to China.

While it is unclear exactly what Super Micro Computer did or did not do, the company’s reputation is now ruined, with more pain ahead for anyone who still owns the stock.

Brett Schafer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.

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