SMCI – THE NUCLEAR NOTHING BURGER THAT CAN EXPOSE NVIDIA SHENANIGANS

Everyone makes mistakes; that’s part of being human, and I make mistakes as well from time to time. The mistake I made this past week was overlooking the fact that SMCI fell into the “Large Accelerated Filers” category (wrong post here) concerning the mandatory reporting requirements the company has to comply with according to SEC rules for publicly listed companies. What am I talking about? In a nutshell, a reporting company that has a public float of $700 million or more and has been listed for at least 12 months meeting all the required filing requirements until then has to comply with the following deadlines:

• Form 10-K due 60 days after fiscal year-end.
• NT 10-K due on the business day after the 10-K due date.
• Late 10-K due after filing an NT 10-K; the deadline for the 10-K is extended 15 calendar days from the actual due date.
• Form 10-Q due 40 days after quarter-end.
• NT 10-Q due on the business day after the 10-Q due date.
• Late 10-Q due after filing an NT 10-Q; the deadline for the 10-Q is extended 5 calendar days from the actual due date.
• Form 11-K due 180 days after retirement plan year-end.
• NT 11-K due on the business day after the 11-K due date.
• Late 11-K due after filing an NT 11-K; the deadline for the 11-K is extended 15 calendar days from the actual due date.

SMCI’s public float is currently equivalent to 50.19M shares that, as per last Friday’s close at 457.16 USD, are worth ~22.95bn USD, and the company has been listed for many years; hence, SMCI falls within the SEC “Large Accelerated Filers” category. Since SMCI’s fiscal year-end is the 30th of June, the company was forced to file the NT 10-K form on the 30th of August (link), starting the 15 calendar days grace period.

Pay attention here:

• The 60 calendar days period to file a 10-K begins from the fiscal year-end, so in the case of SMCI, this date was the 29th of August 2024, with the fiscal year-end being the 30th of June.
• Filing the NT 10-K on the 30th of August (so within 24 hours of the deadline), according to the rule, the company benefits from a 15-day grace period on the previous due date, which was the 29th of August, not the 30th.
• This means that on Friday, September 13th, SMCI’s grace period to file the 10-K report on time expired.

Please forgive me for being so precise here, but this matter is of great importance. Reading the comments I received on my posts over the weekend, I realized there is a lot of confusion on the matter.

Now that I hope there is no more doubt that SMCI is in breach of the SEC filing requirements, something that everyone across MSM and Social Media has completely overlooked, let’s have a look at the potential consequences starting from Monday.

Strictly speaking, there is no true fixed process used by the SEC or exchanges to handle such cases from now on. As I already flagged, these are the potential consequences subject to the magnitude of the problem that did not allow the company to file its 10-K on time:

1. Regulatory Penalties: The SEC can impose fines or other regulatory actions against the company for non-compliance with filing requirements.
2. Stock Exchange Delisting: The NASDAQ doesn’t have a fixed timeline after a company doesn’t comply with financial statement filings. Delisting can take from a few weeks to months, also subject to the eventual actions the company takes.
3. Loss of SEC Registration: If this happens, the company will no longer be able to offer public securities.
4. Debt Covenant Violations: Many loan agreements include covenants that require timely SEC filings. Missing these deadlines could constitute an event of default, potentially leading to immediate repayment demands or other penalties from lenders.

Feels like this is going to end up being a “nothing burger”, right? Not so fast, my dear reader.

Broadly speaking, what can happen on Monday or in the following days can be equivalent to a nuclear bomb detonating right at the core of the raging semiconductor stocks bubble the market fell in love with so much in this cycle.

First of all, we already discussed how another detail incredibly overlooked by MSM and most of social media, SMCI accounted for ~10% of NVIDIA revenues, and its mischiefs are, as a matter of fact, very similar to the many I have flagged about NVIDIA for many months (“HYPERSCALERS” OR “HYPERCHEATERS”? – ADDING HINDENBURG PIECE TO THE BIG PONZI PUZZLE WE HAVE BEEN PUTTING TOGETHER TILL NOW WHILE WAITING FOR NVIDIA EARNINGS). What about future NVIDIA revenues? As reported in “Supermicro (SMCI) Receives Huge NVIDIA Blackwell AI Server Orders, Amounting To 25% of Total Supply“, SMCI effectively represents one-quarter of the future orders NVIDIA received for its Blackwell GPU under development; however, NVIDIA just placed an order to produce ~40,000 Blackwell with TSMC. Considering the price tag for Blackwell is expected to be in the 30,000 – 40,000 USD range, this is equivalent to 1.2-1.6bn USD worth of revenues, while as you can see below, NVIDIA showcased in its latest 10-Q an equivalent of 15.8bn$ of future orders for Hopper and Blackwell combined. Fair question: if NVIDIA has such a strong order book for Blackwell GPUs, why are they asking TSMC to produce so few? Does that have anything to do with the fact that SMCI’s “huge” order might not be real?

For sure, there is one thing we can say: a big amount of past and future revenues of NVIDIA is directly linked to SMCI.

Now, what do you think is going to happen to NVIDIA shares the moment it comes to light that SMCI cannot confirm its future purchase obligations because its accounts were in reality bloated as Hindenburg claimed? Easy question to answer, I believe. At this point, it is fair to argue whether delays reported in Blackwell GPU production have more to do with troubles with SMCI’s “huge” orders rather than real technical problems (“Nvidia Faces Investor Scrutiny Over Blackwell Chip Delays, Big Revenue Expected: Report“). It feels like SMCI’s 10-K filing, if it ever comes through, will bring some clarity to this.

Another aspect incredibly overlooked by investors and media so far might have been SMCI’s role in NVIDIA’s “grey market”. Yes, the one the company itself acknowledged in the 10-Q for Q1-24 and a note that strangely disappeared in its latest 10-Q (“THE DARK CORNERS OF NVIDIA 10-Q REVEAL THE EXTENT OF THE NVIDIA FRAUD“). Connecting the dots between what NVIDIA itself reported and the Hindenburg report, it does not take long to suspect SMCI might have been the enabler of such a “grey market” since the company was perfectly placed to manage it through its Asia supply chain channels. If this is the case, how many of NVIDIA’s past and future revenues will be forced to be restated? As we discovered in the latest 10-Q, NVIDIA reported a lot of revenues that in reality were not duly delivered (“NVIDIA TRICK TO AVOID REGULATORS’ SCRUTINY: PAY MORE TAXES“). Consequently, if SMCI is forced to restate its revenues, that will likely cascade onto NVIDIA, which will inevitably be forced to review all the past revenues tied to SMCI if it ultimately comes to light that the payments needed to complete the transactions will not be ultimately fulfilled.

How many listed companies will be affected if all I described ultimately unfolds? Many. From ARM to TSMC, from SoftBank to Dell (which apparently is seeing an increase in orders due to cancellations hitting SMCI). Clearly, SMCI’s delay in filing its 10-K is a big deal, like it or not.

History has shown so many times that when filings are being delayed, it is every time a harbinger of bad news; some famous cases that come easily to mind are Wirecard or Enron. Usually, it all started when the auditor refused to certify the accounts (Deloitte was SMCI’s auditor till Q2-24, the end of 2024 fiscal year), and it is very hard not to believe it is not the same case, considering the filing delay came right after an incredibly documented short seller report as it happened in the past for the likes of Enron. In SMCI case it is also very strange that after so many years working with Deloitte as their auditor they decided to switch to EY starting from the 1st of July, just a coincidence or perhaps Deloitte wasn’t comfortable anymore with continuing rubber stamping SMCI audits? Nevertheless it is fair to wonder at this point whether a SEC investigation will follow through anytime soon considering the situation. If this happens, and the likelihood of it is increasing by the hour, it does not bode well for SMCI.

To conclude, SMCI might not be a huge market capitalization company considering how inflated valuations are nowadays, but clearly, it can spell a lot of trouble for large mega-capitalization ones like NVIDIA. This is why I suggest keeping a close eye on it since any development coming from this direction can have an impact far greater than what anyone currently believes.