‘Hold Your Horses,’ Says Top Analyst as SMCI Stock Faces Another Downgrade

The war in the Middle East is providing enough stock market drama as it is, but for anyone needing an extra dose of excitement, **Supermicro (NASDAQ:SMCI) **has got that covered.

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Last Thursday, it was reported that Yih-Shyan “Wally” Liaw, a co-founder and board member of Supermicro, collaborated with a Taiwan-based employee and a contractor to circumvent U.S. export controls by sending restricted chips to China. Liaw was charged with conspiring to smuggle roughly $2.5 billion worth of highly sought-after Nvidia GPUs into the country.

In response, Supermicro said Friday that Liaw has stepped down from the board. At the same time, the company promoted DeAnna Luna to Chief Compliance Officer, separating the CCO and CFO roles in line with recommendations made after EY’s 2024 resignation as auditor.

While it’s the right move, Northland’s Nehal Chokshi, an analyst ranked among the top 3% on Wall Street, is not that impressed with the company’s way of going about it.

“Given that DeAnna Luna has been with SMCI since the EY resignation, but only elevated to the CCO position after the Department of Justice unsealed indictment papers against Wally Liaw, we view the appointment as reactionary rather than proactive, albeit still a positive that the roles are finally being formally separated,” the 5-star analyst said.

This marks the second time Wally Liaw’s sales practices have triggered investigations, the first stemming from a 2017 audit committee review tied to a multi-year 10-K filing delay (unrelated to the FY24 EY resignation and second 10-K delay). As such, Chokshi finds it concerning that Supermicro has not fully severed ties with Liaw – he remains on administrative leave – despite clear evidence that he knowingly violated U.S. export laws. While SMCI does not appear complicit, and the 2017 investigation found no definitive wrongdoing, leading to Liaw’s rehiring in 2021, this incident reinforces Chokshi’s earlier concern, initially raised after EY’s FY24 resignation, that the Chairman and CEO roles should be separated.

Chokshi believes the company’s failure to fully cut ties with Liaw risks eroding trust with suppliers and clients, likely resulting in an extended period of flat revenue and earnings growth, a situation unlikely to change until the Chairman and CEO roles are formally separated.

To this end, Chokshi downgraded SMCI shares from Outperform (i.e., Buy) to Market Perform (i.e., Neutral), while slashing his price target from $63 to $22, suggesting the shares are fully valued. (To watch Chokshi’s track record, click here)

7 other analysts also sit on the sidelines, joined by 3 Sells and just 2 Buys, resulting in a Hold consensus rating. The average price target of $31.67 still implies about 42% upside over the next year, though that outlook could change if additional target cuts come through. This also marks the third downgrade for SMCI in the past week. (See SMCI stock forecast)

Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.

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