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Charles Liang, CEO of Super Micro Computer, during the AMD Advancing AI event in San Jose, California, on Dec. 6, 2023.

David Paul Morris | Bloomberg | Getty Images

In March, Super Micro Computer was added to the S&P 500 after an epic run that lifted the stock by more than 2,000% in two years, dwarfing even Nvidia’s gains.

As it turned out, S&P was calling the top.

Less than two weeks after the index changes were announced, Super Micro reached its closing high of $118.81 and had a market cap of almost $70 billion. The stock is down 72% since then, pushing the valuation to under $20 billion, the first major sign in the public markets that the hype around artificial intelligence may not all be justified.

Super Micro is one of the primary vendors for building out Nvidia-based clusters of servers for training and deploying AI models.

The stock plunged 33% on Wednesday, after the company disclosed that its auditor, Ernst & Young, had resigned, saying it was “unwilling to be associated with the financial statements prepared by management.” Super Micro is now at risk of being delisted from the Nasdaq, and has until Nov. 16 to regain compliance with the stock exchange.

“We see higher delisting risk in the absence of an auditor and the potential challenge to getting a new one,” analysts at Mizuho, who have the equivalent of a hold rating on the stock, wrote in a report on Wednesday.

Ernst & Young was new to the job, having just replaced Deloitte & Touche as Super Micro’s accounting firm in March 2023.

A Super Micro spokesperson told CNBC in a statement that the company “disagrees with E&Y’s decision to resign, and we are working diligently to select new auditors.”

Representatives for Ernst & Young and Deloitte didn’t respond to requests for comment.

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Super Micro vs. Nvidia

For much of Super Micro’s three decades in business, the company existed well below the radar, plodding along as a relatively obscure Silicon Valley data center company.

That all changed in late 2022 after OpenAI’s launch of ChatGPT set off a historic wave of investment in AI processors, largely supplied by Nvidia. Along with Dell, Super Micro has been among the big tangential winners in the Nvidia boom, packaging up the powerful graphics processing units (GPUs) inside customized servers.

Super Micro’s revenue has at least doubled in each of the prior three quarters, though the company hasn’t filed official financial disclosures with the SEC since May.

Wall Street’s mood on the company has shifted dramatically.

Since the S&P’s announced index changes in March, Super Micro’s stock has dropped at least 10% on six separate occasions. The most concerning slide, prior to Wednesday, came on Aug. 28, when the shares sank 19% after Super Micro said it wouldn’t file its annual report with the SEC on time.

“Additional time is needed for SMCI’s management to complete its assessment of the design and operating effectiveness of its internal controls over financial reporting as of June 30, 2024,” the company said.

Noted short seller Hindenburg Research then disclosed a short position in the company, and said in a report that it identified “fresh evidence of accounting manipulation.”

‘Clock ticking’

The following month, Super Micro said it had received a notification from Nasdaq, indicating that the delay in the filing of its annual report meant the company wasn’t in compliance with the exchange’s listing rules. Super Micro said Nasdaq’s rules allowed the company 60 days to file its report or submit a plan to regain compliance. Based on that timeframe, the deadline would be mid-November.

It wouldn’t be the first for Super Micro. The company was previously delisted by the Nasdaq in 2018.

Wedbush analysts see reason for worry.

“With SMCI having missed the deadline to file its 10K and the clock ticking for SMCI to remedy this issue, we see this development as a significant hurdle standing in the way of SMCI’s path to filing in time to avoid delisting,” the analysts, who recommend holding the stock, wrote in a report.

As Super Micro’s stock was in the midst of its steepest selloff since 2018 on Wednesday, the company put out a press release announcing that it would “provide a first quarter fiscal 2025 business update” on Tuesday, Nov. 5.

That’s Election Day in the U.S.

Super Micro’s spokesperson told CNBC that the company doesn’t expect matters raised by Ernst & Young to “result in any restatements of its quarterly financial results for the fiscal year ended June 30, 2004, or for prior fiscal years.”

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Beyond Super Micro, the evolving incident is a potential black eye for S&P Dow Jones. Since Super Micro replaced Whirlpool in the S&P 500, shares of the home appliance company are down about 3%, underperforming the broader market but holding up much better than the stock that took its place.

Inclusion in the S&P 500 often causes a stock to rise, because money managers tracking the index have to buy shares to reflect the changes. That means pension and retirement funds have more exposure to the index’s members. Super Micro shot up 19% on March 4, the first trading day after the announcement.

A spokesperson for S&P Global said the company doesn’t comment on individual constituents or index changes, and pointed to its methodology document for general rules. The primary requirements for inclusion are positive GAAP earnings over the four latest quarters and a market cap of at least $18 billion.

S&P is able to make unscheduled changes to its indexes at any time “in response to corporate actions and market developments.”

Kevin Barry, chief investment officer at Cantata Wealth, says greater consideration should be given to a stock’s volatility when additions are made to such a heavily tracked index, especially given that tech already accounts for about 30% of its weighting.

“The chances of a stock going up 10 or 20 times in a year or two and then having an indigestion moment is extremely high,” said Barry, who co-founded Cantata this year. “You’re moving out of a low volatility stock into a higher volatility stock, when tech already represents the largest sector by far in the index.”

— CNBC’s Rohan Goswami and Kif Leswing contributed to this report

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Alphabet shares slide 6% following DOJ push for Google to divest Chrome

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Alphabet shares slide 6% following DOJ push for Google to divest Chrome

Jaque Silva | Nurphoto | Getty Images

Alphabet shares slid 6% Thursday, following news that the Department of Justice is calling for Google to divest its Chrome browser to put an end to its search monopoly.

The proposed break-up would, according to the DOJ in its Wednesday filing, “permanently stop Google’s control of this critical search access point and allow rival search engines the ability to access the browser that for many users is a gateway to the internet.”

This development is the latest in a years-long, bipartisan antitrust case that found in an August ruling that the search giant held an illegal monopoly in both search and text advertising, violating Section 2 of the Sherman Act.

The potential break-up would include preventing Google from entering into exclusionary agreements with competitors like Apple and Samsung, part of a set of remedies that would last 10 years.

CNBC’s Jennifer Elias contributed to this report.

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Nvidia shares slump 3% in premarket as quarterly revenue growth slows

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Nvidia shares slump 3% in premarket as quarterly revenue growth slows

POLAND – 2024/11/13: In this photo illustration, the NVIDIA company logo is seen displayed on a smartphone screen. (Photo Illustration by Piotr Swat/SOPA Images/LightRocket via Getty Images)

Sopa Images | Lightrocket | Getty Images

Nvidia shares dropped in U.S. premarket trading Thursday after the tech giant’s third-quarter earnings failed to impress investors.

Shares of the chipmaker slumped 3.21% at around 5:03 a.m. ET, following the Wednesday release of Nvidia’s quarterly results, which beat on both the top and bottom lines.

Revenue came in at $35.08 billion, up 94% year-on-year and exceeding the $33.16 billion forecast by LSEG analysts. Earnings per share was 81 cents adjusted, also above analyst expectations.

Other chipmakers fell on the back of the market reaction to Nvidia’s third-quarter results. Shares of Intel, Qualcomm and Micron Technology all lost 1% or more in value, while AMD declined 0.6%.

The slump in Nvidia also had a knock-on effect on European semiconductor firms. ASML, a key chip equipment supplier, dropped 0.9%, while compatriot Dutch chip firm ASMI fell 0.5%. Chipmakers BE Semiconductor, STMicroelectronics and Infineon slipped 0.8%, 0.7 and 0.6%, respectively.  

Several notable chip names were also in negative territory in Asia. TSMC, which makes Nvidia’s high-performance graphics processing units, eased as much as 1.5%. Contract electronics manufacturer Foxconn dropped 1.9%.

Why are Nvidia shares falling?

Nvidia has largely cornered the market for the high-powered chips powering the world’s most advanced artificial intelligence models, such as OpenAI’s ChatGPT.

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British regulators will soon announce competition remedies for the multibillion-pound cloud industry

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British regulators will soon announce competition remedies for the multibillion-pound cloud industry

Ofcom said it received evidence showing Microsoft makes it less attractive for customers to run its Office productivity apps on cloud infrastructure other than Microsoft Azure.

Igor Golovniov | Sopa Images | Lightrocket via Getty Images

LONDON — Britain’s competition regulator is preparing remedies aimed at solving competition issues in the multibillion-pound cloud computing industry.

The Competition and Markets Authority is set to unveil its provisional decision detailing “behavioral” remedies addressing anti-competitive practices in the sector following a months-long investigation into the market, two sources familiar with the matter told CNBC.

The sources, who preferred to remain anonymous given the investigation’s sensitive nature, said that the cloud market remedies could be announced within the next two weeks. The regulator previously set itself a deadline of November to December 2024 to publish its provisional decision.

A CMA spokesperson declined to comment on the timing of its provisional decision when asked by CNBC.

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Cloud infrastructure services is a market that’s dominated by U.S. technology giants Amazon and Microsoft. Amazon is the largest player in the market, offering cloud services via its Amazon Web Services (AWS) arm. Microsoft is the second-largest provider, selling cloud products under its Microsoft Azure unit.

The CMA probe traces its history back to 2022, when U.K. telecoms regulator Ofcom kicked off a market study examining the dominance of cloud giants Amazon, Microsoft and Google. Ofcom subsequently referred its cloud review to the CMA to address competition issues in the market.

Why is the CMA concerned?

Among the key issues the CMA is expected to address with recommended behavioral remedies, are so-called “egress” fees charging companies for transferring data from one cloud to another, licensing fees viewed as unfair, volume discounts, and interoperability issues that make it harder to switch vendor.

According to one of the sources, there’s a chance Google may be excluded from the scope of the competition remedies given it is smaller in size compared to market leaders AWS and Microsoft Azure.

Amazon and Microsoft declined to comment on this story when contacted by CNBC. Google did not immediately return a request for comment.

What could the remedies look like?

The CMA has said previously in June that it was more minded toward considering behavioral remedies to resolve its concerns as opposed to “structural” remedies, such as ordering divestments or operational separations.

The watchdog said in a working paper in June that it was “at an early stage” of considering potential remedies.

Solutions floated at the time included imposing price controls restricting the level of egress fees, lowering technical barriers to switching cloud providers, and banning agreements encouraging firms to commit more spend in return for discounts.

One contentious measure the regulator said it was considering was requiring Microsoft to apply the same pricing for its productivity software products regardless of which cloud they’re hosted on — a move that would have a significant impact on Microsoft’s pricing structures.

CMA Chief Executive Sarah Cardell is set to hold a speech on Thursday at Chatham House, a U.K. policy institute. In an interview with the Financial Times, she defended the regulator’s track record on competition enforcement amid criticisms from Prime Minister Keir Starmer that the agency was holding back growth.

She is expected to outline plans for a review in 2025 into whether the CMA should more frequently use behavioral remedies when approving deals, the FT reported.

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