Super Micro's billion stock collapse underscores risk of AI hype

Technology

Super Micro’s $50 billion stock collapse underscores risk of AI hype

Published

1 year ago

October 31, 2024

admin

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.

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.”

Jim Cramer breaks down the S&P 500's worst performers in Q3

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

WATCH: Super Micro stock is a ‘very risky buy’

Super Micro stock is a 'very risky buy', but it will bounce back, says fund manager

Technology

Tesla recalls 10,500 Powerwall 2 battery systems due to overheating, fire risk

Published

2 hours ago

November 13, 2025

admin

Tesla recalls 10,500 Powerwall 2 battery systems due to overheating, fire risk

Tesla’s Powerwall 2

Source: Tesla

Tesla is recalling around 10,500 units of its Powerwall 2, a backup battery for residential use, according to a U.S. Consumer Product Safety Commission disclosure out Thursday.

“The lithium-ion battery cells in certain Powerwall 2 systems can cause the unit to stop functioning during normal use, which can result in overheating and, in some cases, smoke or flame and can cause death or serious injury due to fire and burn hazards,” the CPSC recall notice said.

While Elon Musk‘s electric vehicle and clean energy company blamed the issue on a “third-party battery cell defect,” it did not name the supplier.

The recall notice said Tesla previously received 22 customer reports of the Powerwall 2 overheating, including five fires resulting in “minor property damage,” but no known injuries.

MLS games head to Apple TV in 2026 as Season Pass subscription ends

Published

2 hours ago

November 13, 2025

admin

MLS games head to Apple TV in 2026 as Season Pass subscription ends

Major League Soccer is stepping onto a bigger stage next year, when all of its matches will find a new home on Apple TV.

Beginning in the 2026 season, MLS games will be available on Apple’s flagship streaming platform, which currently includes Major League Baseball games as well as scripted series like “Severance.”

The move marks a big shift for both the league and Apple’s media strategy, as the tech giant will end Season Pass — the separate subscription service for MLS games provided by Apple.

Apple and MLS had inked a 10-year media rights deal in 2022 that saw Apple become the exclusive global home to the U.S. professional soccer league. However, rather than feature matches on the fledgling streaming service, Apple instead launched Season Pass for an additional subscription solely for MLS games.

“This idea that you could watch all of our matches in one place with a push of the button globally was unprecedented. We really, really liked that concept with Season Pass, and it worked because people reacted really well to the product,” MLS Deputy Commissioner Gary Stevenson said in an interview.

Season Pass — which costs $14.99 a month, compared to the $12.99 charged for the separate monthly Apple TV subscription — kicked off in 2023. Apple doesn’t provide subscriber metrics for its streaming services.

Stevenson said that conversations about moving the league to Apple TV started as Apple’s main streaming platform grew.

“They came to us and said, ‘Let’s put it on Apple TV,’ and we said, ‘We’re all in,'” said Stevenson. “So this was good news for us.”

While Stevenson didn’t go into specifics, some terms of the deal changed as part of the move to Apple TV.

“But it’s not like it was a big renegotiation because what we’ve been focused on is the distribution, and how to make it a better and more accessible experience for the fans,” said Stevenson.

Since jumping into the streaming game, Apple has methodically added sports to its platform and has secured exclusive rights in an increasingly fragmented sports viewing ecosystem.

Most recently Apple and Formula 1 inked a five-year exclusive media rights deal, meaning all races will stream on Apple TV in the U.S. beginning next year. Apple is paying roughly $140 million annually for the F1 rights, CNBC previously reported.

Apple has been looking to change the current sports viewing experience. While live sports garners huge audiences in the pay TV bundle, the rise of streaming has led to a fractured market in which consumers often require multiple subscriptions to watch one sport.

At a recent event, Apple Senior Vice President of Services Eddy Cue said the market has “gone backwards,” when it comes to sports viewership.

“You used to buy one subscription, your cable subscription, and you got pretty much everything they had. Now, there’s so many different subscriptions, so I think that needs to be fixed,” Cue said during a panel in October.

Since MLS kicked off its media rights deal with Apple, there has been little information about how Season Pass has performed — and some skepticism about its success.

However, MLS Commissioner Don Garber told CNBC Sport in an interview last year that Apple Season Pass subscriptions had exceeded expectations, though he declined to provide specific numbers.

“We have more subscribers than we and Apple thought we would have,” Garber told CNBC at the time, adding that there would be more transparency at a later date.

Apple also doesn’t release numbers for Apple TV, but Cue has reportedly said that the platform has “significantly more than 45 million” viewers.

The broader reach for the league will come after the MLS completed its 30th season. It has been working to capitalize on the growth of soccer’s popularity in the U.S., particularly ahead of the World Cup, which will take place in North America next year.

The league, which pales in comparison to the popularity of the NFL, NBA and other U.S. pro sports that have existed for decades before the MLS, has also seen fandom increase in recent years after global superstar Lionel Messi started playing for Inter Miami CF.

Technology

Wall Street cools on Oracle’s buildout plans as debt concerns mount: ‘AI sentiment is waning’

Published

2 hours ago

November 13, 2025

admin

Wall Street cools on Oracle's buildout plans as debt concerns mount: 'AI sentiment is waning'

Oracle CEO Clay Magouyrk speaks at a Q&A following a tour of the OpenAI data center in Abilene, Texas, U.S., Sept. 23, 2025.

Shelby Tauber | Reuters

Two months ago, Oracle’s stock had its best day since 1992, soaring 36% to a record after the company blew away investors with its forecast for cloud infrastructure revenue.

Since then, the company has lost one-third of its value, more than wiping out those gains. Midway through November, the stock is on pace for its worst month since 2011.

The hype was sparked by Oracle’s strengthening ties to OpenAI. But the mood of late has turned, with investors questioning whether the AI market ran too far, too fast and whether OpenAI can live up to its $300 billion commitment to Oracle over five years.

“AI sentiment is waning,” said Jackson Ader, an analyst at KeyBanc Capital Markets, in an interview.

Ader said that of the big cloud companies in the GPU business, Oracle is expected to generate the least amount of free cash flow. To fund the capex required for Oracle’s business, Ader expects Oracle to turn to more creative financing tools.

Oracle is looking to raise $38 billion in debt sales to help fund its AI buildout, according to sources with knowledge of the matter who asked not to be named because the information is confidential. Bloomberg reported on the planned debt raise last month.

Read more CNBC reporting on AI

The company needs a massive pool of capital as it works with partners to develop and lease data centers across Texas, New Mexico and Wisconsin, while also buying hundreds of thousands of graphics processing units (GPUs) from Nvidia and Advanced Micro Devices to run AI models.

At Oracle’s big annual conference in October, called AI World, tech enthusiasts cheered the company’s cloud infrastructure design as being easily scalable. Investors remained largely enthusiastic at the time, thanks to Oracle’s over $450 billion in signed contracts that hadn’t yet been recognized as revenue.

Skepticism started to hit shortly after the conference. Oracle shares fell 7% on Oct. 17, as investors questioned the company’s ability to reach its lofty outlook announced at its investor day. Oracle said it expected to reach $166 billion in cloud infrastructure revenue in the 2030 fiscal year, up from $18 billion in fiscal 2026.

Oracle’s next quarterly earnings report is expected in mid-December.

Andrew Keches, an analyst at Barclays, said off-balance sheet debt facilities and vendor financing are two options for Oracle. Keches recently downgraded Oracle’s debt, citing the company’s “significant funding needs.”

“We struggle to see an avenue for ORCL’s credit trajectory to improve,” Keches wrote in a note to clients this week.

Oracle Corp Chief Executive Larry Ellison during a launch event at the company’s headquarters in Redwood Shores, California June 10, 2014.

Noah Berger | Reuters

Oracle bulls point to founder Larry Ellison’s long and storied track record. A hedge fund manager who asked to remain anonymous told CNBC that Ellison is “someone you don’t want to bet against.”

And Rishi Jaluria, an analyst at RBC Capital Markets, said in an interview that Oracle could rebuild its momentum in the market with more AI deals. However, Jaluria currently has a hold rating on the stock.

As more investors look to hedge their bets, Oracle’s 5-year credit default swaps have climbed to a 2-year high, a level that’s not alarming but worth watching, credit analysts told CNBC. Credit default swaps are like insurance for investors, with buyers paying for protection in case the borrower can’t repay its debt.

Barclays recommended clients buy Oracle’s 5-year credit default swaps.

Oracle didn’t immediately respond to a request for comment. Last month, CNBC’s David Faber asked Clay Magouyrk, one of Oracle’s two CEOs, whether OpenAI will be able to pay Oracle $60 billion a year. Magouyrk responded, “of course,” while also pointing to OpenAI’s growth prospects and rapid rise in users.

OpenAI CEO Sam Altman said in a post on X last week that the company will top $20 billion in annualized revenue this year and reach hundreds of billions of dollars by 2030.

Gil Luria, an analyst at D.A. Davidson, told CNBC’s “Fast Money” on Wednesday that Oracle represents the “bad behavior in the AI buildout.” He contrasted Oracle with Microsoft, Amazon and Google, which he said all have the available cash and customer demand to justify their rapid expansions.

For Oracle, however, there’s an overreliance on OpenAI, a cash-burning startup, Luria said. Additionally, he said that gross margins for renting out GPUs are dramatically lower than the roughly 80% margin in the company’s core business. Luria has a hold rating on the stock.

In terms of the $100 of stock appreciation that initially followed the last earnings report, “it makes a lot of sense that that’s completely gone away,” Luria said.

WATCH: Oracle and CoreWeave represent ‘bad behavior’ in AI buildout