Super microcomputer (SMCI -22.15%) has been one of the most volatile stocks in 2024. It started the year with a staggering 300% gain in just three months, but the stock has been down since March following a series of worrying headlines.

The biggest shocks for investors came in recent months, when Supermicro’s accounting practices were called into question. And the latest news was enough for me to completely abandon my position on the stock.

Can you trust what management says?

Supermicro benefits significantly from artificial intelligence (AI) tailwinds. It builds large-scale servers and other components that are sold to companies looking to expand their AI computing power. Although it hasn’t received the same press as Nvidiait remains one of the biggest winners among AI stocks.

Its revenue exploded with revenue up 143% year over year to $5.3 billion in the fourth quarter of fiscal 2024 (ended June 30) , and management previously forecast growth of 74% to 101% for fiscal 2025.

Unfortunately, some investors may have difficulty trusting these numbers.

Supermicro’s most serious problems began when Hindenburg Research released a brief report on the company in late August. In its report, the company accused Supermicro of accounting malpractice, reminding investors of the $17.5 million fine the company paid as part of a 2020 settlement with the SEC for similar accounting violations.

To make matters worse, management announced the day after the short report that it was delaying the submission of its Form 10-K to evaluate “the design and operational effectiveness of its internal controls over financial reporting”. This news was followed by reports that the Justice Department had launched its own investigation into the company.

These developments sent the stock plunging, and I purchased shares of Supermicro during this period, believing that the risk was worth the potential reward given the very real boom in demand for AI computing. However, I kept my position size at around 1% of my portfolio.

The problem is that it increasingly appears that Hindenburg’s brief report is accurate.

The only company to see Supermicro’s finances resign

Supermicro still hasn’t filed its 10-K, so investors don’t know what changes or restatements (if any) will occur. However, one company did review its financial statements: Ernst & Young, its financial auditor.

Ernst & Young resigned as Supermicro’s auditor last month, saying they “did not wish to be associated with the financial statements prepared by management.” In other words, the auditor is saying that he does not trust what management is telling him. That’s about the biggest red flag possible for a business. If you can’t trust a company’s financial data, you can’t trust what it does or says.

Following the resignation, the stock immediately lost a third of its value. I was among those who sold because it is clear that the problems around Supermicro are not going to go away.

Even if Supermicro cleans house, it will face an uphill battle to rebuild its reputation and trust with its shareholders. Many investors, analysts, and investment firms will likely avoid it altogether, even though its growth rate is impressive.

The only thing that would convince me to come back to the market is a completely new management team. However, given that CEO Charles Liang is also the founder and chairman of the board, this is unlikely to happen.

There are many promising technology stocks in the market beyond Super Micro Computer, and if you still hold shares, you should consider selling them. There is no easy path for business.