Super Micro Computer Pops on Good News. Is the Stock Safe to Buy Now?

Shares of Super Micro Computer (NASDAQ: SMCI), the ailing artificial intelligence (AI) server maker, were surging today after the company finally gave investors a favorable update from its independent special committee.

The report from Supermicro, which has been through a series of financial reporting setbacks, offered some good news and helped boost investor confidence.

As a result, the stock was up 15.6% as of 10:23 a.m. ET.

Image source: Getty Images.

Supermicro gets some good news

In a press release this morning, the company said that the independent special committee, in conjunction with outside counsel and a forensic accounting firm, found no evidence of misconduct by management or the board of directors. It also said that the audit committee acted independently and that it did not anticipate a restatement of financial results.

Among the committee's key findings were that the audit committee acted with appropriate independence, and that top management's rehiring of former employees was consistent with proper financial reporting and legal compliance.

The committee also looked into issues raised by Ernst & Young, which resigned as the company's auditor in October. Those issues included the rehiring of employees who had resigned in 2018 following an earlier audit committee investigation, related party disclosures, export controls related to restricted countries, and revenue recognition practices.

Finally, management agreed to implement the board's recommendations, including beginning a search for a new CFO, as the committee found process lapses in certain guardrails for the rehiring of employees. Current CFO David Weigand will stay at his point until the board names a successor.

Supermicro has also accelerated its search for a chief compliance officer, whose responsibilities had been performed by the CFO, as well as its search for general counsel.

Image source: Getty Images.

What's next for Supermicro?

The committee's report implies that the company's accounting problems are related to its recent rapid growth, rather than any nefarious intent. That may be true, as the business has experienced significant growth in the AI era, with revenue more than doubling on a year-over-year basis.

While the report is a step in the right direction for Super Micro Computer and offers some reassurance for investors, it did not give an update on the expected timing for its outstanding 10-K or 10-Q filings, which is the biggest cloud hanging over the stock.

Until the company corrects that, the stock is still high risk, though today's gains are warranted, as management appears to be moving to rectify the situation.

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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.