Super Micro faces delisting from Nasdaq after 85% stock decline.

• If Super Micro fails to provide a viable compliance plan by Monday, the Nasdaq could initiate the delisting process.
• The AI darling has experienced a significant decline in value, losing 85% of its worth since its peak in March.
• The delisting issue may harm Super Micro's reputation and customer relationships.

There is a possibility that the company could be delisted from the Nasdaq stock exchange as early as Monday.

If Super Micro fails to submit a compliant plan with Nasdaq regulations, it may face potential consequences. The company is currently behind schedule in filing its 2024 year-end report with the SEC and has not yet replaced its accounting firm. Last week, investors were hoping for clarity from Super Micro when the company released preliminary quarterly results, but they were left disappointed.

The main aspect of that plan is the details of when and how Super Micro will submit its 2024 year-end report to the Securities and Exchange Commission, as well as the reasons for its tardiness. This report, which was anticipated to be filed alongside the company's June fourth-quarter earnings, was not submitted.

The delisting of the Nasdaq presents a critical juncture for Super Micro, which has profited significantly from the AI boom owing to its longstanding partnership with and the increasing demand for its graphics processing units.

The once-celebrated AI company is struggling after a series of negative developments. In the summer, Super Micro failed to submit its annual report, which led to activist short seller Hindenburg Research accusing the company of accounting fraud and export control violations in August. In October, Ernst & Young resigned as the company's auditor, and last week, Super Micro announced that it was still searching for a replacement.

The stock of Super Micro has been hit hard, with its shares falling by 85% since their peak in March of this year. This is despite the fact that the shares had soared more than 14-fold from the end of 2022 to their peak in March. On Thursday, the stock fell another 11%, bringing it back to its trading price in May 2022.

If Super Micro fails to submit a compliance plan by Monday or if the Nasdaq rejects its submission, the company may be delisted. However, Super Micro could also request an extension, allowing it more time to come into compliance. The company stated on Thursday that it would submit a plan to the Nasdaq before the deadline.

The company intends to comply with Nasdaq's continued listing requirements as soon as possible, as stated by a spokesperson to CNBC.

The delisting issue may harm Super Micro's reputation and customer relationships, prompting them to switch to competitors like NVIDIA or AMD.

Since Super Micro's accounting issues have intensified since its last quarter, its weakness could advantage Dell in the upcoming quarter, according to Bernstein analyst Toni Sacconaghi in a recent note.

The Nasdaq representative stated that they do not comment on the delisting process for individual companies, but the rules indicate that the process may take approximately a year before a final decision is made.

A plan of compliance

On Sept. 17, the Nasdaq informed Super Micro that it faced the possibility of being delisted. The company was given 60 days to submit a plan of compliance to the exchange. Since the deadline falls on a Sunday, the effective date for the submission will be Monday.

If Super Micro's board of directors has investigated the company's accounting problem, the exact reason for the late filing, and has taken a timeline of actions, the company is eligible for an extension of up to 180 days to file its year-end report.

The Nasdaq evaluates various factors when assessing a company's plan of compliance, such as the reasons for late filing, upcoming corporate events, financial status, and the likelihood of an audited report being filed within 180 days. Additionally, the review may consider information from outside auditors, the SEC, or other regulators.

Last week, Super Micro stated that it was taking all necessary steps to remain listed on the Nasdaq and that a special committee of its board had conducted an investigation and found no wrongdoing. Super Micro CEO Charles Liang stated that the company would receive the board committee's report as soon as last week. However, a company spokesperson did not respond when asked by CNBC if the report had been received.

If the Nasdaq rejects Super Micro's compliance plan, the company can request a hearing from the exchange's Hearings Panel to review the decision. During this hearing, Super Micro won't be immediately kicked off the exchange. Instead, the hearing panel request starts a 15-day stay for delisting. The panel can decide to extend the deadline for up to 180 days.

If the panel rejects the request or Super Micro fails to file updated financials, the company can still appeal the decision to the Listing Council, which may grant an exception.

The Nasdaq has set a limit of 360 days from the due date of the first late filing for the extensions.

A poor track record

The SEC's consideration of Super Micro's compliance history with regulations could hinder its chances of an extension.

In the years 2015 to 2017, Super Micro provided inaccurate financial information and submitted important documents late, as per the SEC. The company was removed from the Nasdaq stock exchange in 2017 and was reinstated two years later.

According to Wedbush analyst Matt Bryson, the Nasdaq may have a more challenging time granting extensions to Super Micro due to its past compliance history. He has a neutral rating on the stock.

History also reveals just how long the delisting process can take.

In May 2018, Super Micro received an extension to August after missing its annual report filing deadline in June 2017 and getting an initial extension to December. It was only after missing the deadline that the stock was delisted.

The immediate concern for Super Micro is whether customers and suppliers will abandon them.

Despite compliance issues, Super Micro is a rapidly expanding company that produces highly sought-after technology products. Its sales increased by over 100% last year to approximately $14.9 billion, according to unconfirmed financial reports, and the company has a substantial amount of cash on hand, analysts predict. Wall Street anticipates further growth to around $25 billion in sales in the upcoming fiscal year 2025, according to FactSet.

Super Micro reported slower growth than expected in its unaudited September quarter results, which it attributed to the delay in filing. The company also provided light guidance.

Super Micro's weak results were attributed to the company not having enough supply of Nvidia's Blackwell chip yet, which raised concerns about its relationship with its key supplier.

According to Melius Research analyst Ben Reitzes, while Super Micro's issues may not be a significant concern for Nvidia, it could cause some sales to shift from one quarter to the next as customers redirect their orders to Dell and other competitors.

Last week, on a call with investors, Super Micro's head of corporate development, Michael Staiger, stated that Nvidia had confirmed they had not made any changes to their allocations and that Super Micro maintains a strong relationship with them.

Super Micro's stock price decreased following their earnings report, despite an investigation finding no evidence of fraud or misconduct.