Super Micro Computer (SMCI), a prominent artificial intelligence company, experienced a sharp decline in its stock price on Wednesday, plummeting 19% after announcing a delay in the filing of its annual report for the fiscal year that ended on June 30. The delay comes shortly after short seller Hindenburg Research made allegations of "accounting manipulation" against the tech company.

In a statement, Super Micro Computer stated that it was unable to file its Annual Report within the prescribed timeframe without encountering unreasonable effort or expense. The company explained that additional time was needed for management to complete an assessment of the design and operating effectiveness of its internal controls over financial reporting for the period ending June 30, 2024.

Super Micro Computer had been performing exceptionally well earlier in the year, with its share price skyrocketing from $290 in January to around $1,200 by March. This success led to its inclusion in the S&P 500 and the Nasdaq 100 index. However, the stock has since experienced a significant decline, currently down more than 60% from its peak in March, yet still up by 50% year to date. To address this situation, the company recently announced a 10-for-1 stock split, which will take effect on October 1.

On Tuesday, Super Micro's stock dipped approximately 2% following Hindenburg Research's revelation of its three-month investigation, which uncovered alleged accounting irregularities, undisclosed related party transactions, failures to comply with sanctions and export controls, and customer issues. Hindenburg Research also disclosed that they had taken a short position in Super Micro, resulting in substantial profits for short sellers particularly on Wednesday, when the stock price dropped by 24%.

According to S3 Partners data, short sellers made over $1.07 billion in midday mark-to-market profits during the stock's mid-session trading drop. Ihor Dusaniwsky, the head of predictive analytics at S3 Partners, explained that short sellers had been increasing their positions since April but significantly ramped up their activities from mid-July. Since July 15, short sellers have amassed mark-to-market profits exceeding $2.85 billion, anticipating further declines in Super Micro's stock price. However, Dusaniwsky also cautioned about a potential surge in buy-to-cover orders once the stock price stabilizes, leading short sellers to secure their substantial gains.

In response to Hindenburg Research's allegations, CFRA analysts downgraded their rating of Super Micro's stock from Buy to Hold. Although CFRA Research senior equity analyst Shreya Gheewala acknowledged that the evidence presented did not conclusively demonstrate significant accounting malpractice or verifiable sanction evasions, concerns were raised due to the delayed 10-K filing and the potential damage to the company's reputation.

Hindenburg Research's report highlighted Super Micro's previous settlement of $17.5 million with the SEC in August 2020 for "widespread accounting violations." However, the report claimed that the company's business practices did not improve, and senior executives implicated in the scandal were later rehired. Former salespeople quoted in the report alleged that pressure to meet quotas led to the stuffing of distributors with "partial shipments" and the shipment of defective products near the end of each quarter.

With these allegations, Hindenburg Research referred to Super Micro as a "serial recidivist," suggesting a pattern of repeated misconduct. As the investigation unfolds and the company continues to grapple with the delayed filing and reputational challenges, investors and analysts will closely monitor the developments surrounding Super Micro Computer's future.