In August 2024, Hindenburg Research, a prominent short-selling firm, released a report on SMCI which led to a significant decline in SMCI’s stock value, which has fallen from its all time high of $114 to $18 in just 6 months.

I'll now explain why I continue to buy SMCI at $18 level despite all the bad news:

1. Valuation: at $18 a share, PE is around 10 which looks very undervalued. Not many days you can buy a tech stock for a PE under 10. The last time I had the opportunity was when Facebook dropped to $88 and PE was 8 that time. 

2. SMCI plays a significant role in Nvidia’s overall revenue, particularly in the data center segment. SMCI designs and manufactures high-performance servers and computing systems, many of which are optimized for Nvidia’s graphics processing units (GPUs), especially for artificial intelligence (AI) and machine learning applications. A simple analogy could be comparing Nvidia to the engine of a car, and SMCI to the car itself. Nvidia provides the powerful engine (GPUs) that makes everything run fast and efficiently, while SMCI builds the car (servers) that holds the engine and makes it all work together. Without the engine, the car wouldn’t move, and without the car, the engine wouldn’t have a place to go. Both are essential for the system to function properly.

If SMCI really fake their financial report, does that mean Nvidia revenue may have problem too?

3. SMCI experienced delisting from the Nasdaq previously which result to its shares being traded in the “grey market.” Despite the delisting, trading continues to occur over-the-counter (OTC), which means the stock is still accessible for buying and selling, albeit with less liquidity and regulatory oversight. This situation isn’t entirely unprecedented, as other companies have also faced similar delisting events and continued to trade in the grey market for a period. Investors have to approach such stocks with caution, as volatility can be heightened, and pricing may fluctuate based on investor sentiment rather than traditional market forces.