Key Takeaways
- Federal prosecutors indicted three individuals connected to Super Micro Computer, including co-founder Wally Liaw, for allegedly smuggling Nvidia GPUs to China
- SMCI shares plummeted more than 30% on Friday and remain down 26% year-to-date despite Monday’s partial recovery
- Nvidia has yet to clarify whether it will maintain its chip supply relationship with Super Micro
- Citi analyst slashed SMCI price target from $39 to $25, highlighting significant “reputation risk”
- Wall Street consensus: Super Micro’s survival hinges on Nvidia’s decision to continue or halt chip allocations
Federal authorities arrested Super Micro’s co-founder last week in connection with an alleged conspiracy to illegally export Nvidia’s advanced chips to China. The indictment names three individuals—a board member, a current employee, and an external contractor—but does not charge Super Micro Computer as a corporate entity.
Super Micro Computer, Inc., SMCI
Yih-Shyan “Wally” Liaw, a current board member, allegedly participated in a scheme to illegally divert Nvidia’s cutting-edge B200 processors. The revelation triggered a massive sell-off, with SMCI shares losing approximately one-third of their market value in a single trading session on Friday.
Shares rebounded slightly on Monday amid broader market optimism driven by geopolitical developments. Nevertheless, SMCI remains in negative territory for 2026, down 26% year-to-date—a sharp reversal for a company that had been capitalizing on surging artificial intelligence infrastructure demand.
Liaw’s complicated history with Super Micro adds another troubling dimension to the situation. He stepped down from the company in 2018 following an audit committee probe that resulted in financial restatements. The company rehired him in 2022 and appointed him to the board in 2023. That rehabilitation decision now appears questionable given the criminal allegations.
This isn’t Super Micro’s first brush with controversy. Last year, short-selling firm Hindenburg Research published allegations questioning the company’s accounting practices. Those accusations ultimately resulted in Super Micro losing its independent auditor and prompted a Department of Justice investigation.
Wall Street Downgrades SMCI Amid Uncertainty
Citi analyst Asiya Merchant slashed her SMCI price target to $25 from $39 on Monday while maintaining a Neutral/High risk rating. She emphasized that despite the charges targeting individuals rather than the corporation, both customers and suppliers will likely implement enhanced due diligence measures.
“We believe this warrants a lower valuation until there is more visibility on the path forward,” Merchant stated in her research note. SMCI stock showed minimal movement in Tuesday’s premarket session.
Bernstein Research analysts echoed similar concerns, noting that the indictment “raises serious credibility issues that could impact business” despite the company not being formally charged.
Nvidia’s Decision Holds the Key
The pivotal issue facing Super Micro is whether Nvidia will continue allocating GPU supplies to the embattled server manufacturer. Bernstein analysts cautioned that any reduction or termination of GPU allocations would deliver a “devastating impact” to Super Micro’s operations.
Nvidia released a brief statement emphasizing that export control compliance remains a “top priority” for the company, but conspicuously avoided commenting on its future business relationship with Super Micro.
Super Micro reported explosive growth, with revenue surging to $12.7 billion in the December quarter—more than doubling year-over-year. The company projects $40 billion in revenue for the fiscal year ending in June, representing nearly 100% growth compared to the previous year.
Susquehanna analyst Mehdi Hosseini argued that the indictment “only underscores the urgency” of replacing CEO Charles Liang with an external candidate and installing fully independent board directors.
The company’s profitability metrics paint a concerning picture, with gross margins declining to a record low of 6.3% in the most recent quarter. Hosseini highlighted that executive compensation structures have historically emphasized revenue expansion over financial quality and sustainability.
Nvidia’s upcoming Vera Rubin chip architecture, scheduled for release later this year, provides the GPU giant with flexibility to redirect any Super Micro allocation to alternative partners. The alleged smuggling operation also creates political complications for Nvidia with the current administration, which has prioritized preventing advanced AI chips from reaching China.
Super Micro stock was trading around $35 in Tuesday’s premarket session.
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