Key Points
- Federal prosecutors indicted three individuals connected to Super Micro for allegedly trafficking Nvidia chips to China illegally, including company co-founder Wally Liaw
- SMCI shares plummeted by approximately one-third on Friday and remain down 26% year-to-date
- Nvidia has remained silent on whether it will maintain its chip partnership with Super Micro
- Citi analysts slashed SMCI’s price target from $39 down to $25, highlighting significant “reputation risk”
- Wall Street experts believe Super Micro’s survival hinges entirely on Nvidia’s decision to continue chip allocations
Federal authorities arrested Super Micro’s co-founder last week on allegations of orchestrating an illegal scheme to export Nvidia chips to China. The criminal indictment named three individuals—including a company employee and an outside contractor—but stopped short of charging Super Micro Computer as a corporate entity.
Super Micro Computer, Inc., SMCI
Yih-Shyan “Wally” Liaw, currently serving on the company’s board of directors, allegedly participated in a conspiracy to illegally reroute Nvidia’s cutting-edge B200 processors. The announcement triggered a brutal selloff—SMCI shares collapsed by approximately 33% in a single trading session on Friday.
Shares experienced a modest rebound Monday as markets rallied on unrelated geopolitical developments. Nevertheless, SMCI remains underwater by 26% for 2026, marking a dramatic reversal for a company that had previously benefited from the artificial intelligence infrastructure boom.
Liaw’s complicated relationship with the organization adds another troubling dimension. He stepped down in 2018 following an internal audit committee investigation that resulted in restated financial statements. Super Micro rehired him in 2022 before appointing him to the board in 2023. That rehabilitation now appears questionable given these criminal allegations.
This controversy represents just the latest problem for Super Micro. Last year, short-focused research firm Hindenburg Research published allegations questioning the company’s accounting practices. Those accusations ultimately resulted in Super Micro losing its independent accounting firm and sparked a Department of Justice investigation.
Wall Street Slashes Expectations
Citi equity analyst Asiya Merchant reduced her price objective on SMCI from $39 down to $25 on Monday, maintaining a Neutral rating with high risk designation. She indicated that despite the charges targeting specific individuals rather than the corporation, both customers and suppliers will likely implement enhanced due diligence protocols.
“We believe this warrants a lower valuation until there is more visibility on the path forward,” Merchant stated in her research note. Super Micro shares traded slightly lower in premarket activity Tuesday.
Analysts at Bernstein Research echoed these concerns, noting the indictment “raises serious credibility issues that could impact business” despite the company itself avoiding criminal charges.
Nvidia Holds All the Cards
The existential question facing Super Micro centers on whether Nvidia will maintain its GPU supply relationship. Bernstein analysts warned that termination of graphics processing unit allocations would deliver a “devastating impact” to operations.
Nvidia released a brief statement emphasizing that export control compliance represents a “top priority,” but carefully avoided confirming or denying its future intentions regarding Super Micro.
Super Micro reported revenue growth exceeding 100% to $12.7 billion during the December quarter. Management has issued guidance projecting $40 billion in revenue for the fiscal year concluding in June—representing nearly double the previous year’s performance.
Susquehanna analyst Mehdi Hosseini stated the indictment “only underscores the urgency” of removing CEO Charles Liang in favor of an external candidate and installing completely independent board directors.
The company’s gross profit margins contracted to a record low of 6.3% in the most recent quarter. Hosseini observed that executive compensation structures have historically emphasized revenue expansion rather than financial quality metrics.
Nvidia plans to introduce its next-generation Vera Rubin chip architecture later this year, potentially enabling the company to redistribute any Super Micro allocation relatively seamlessly. The alleged smuggling operation also creates political complications for Nvidia with the Trump administration, which has prioritized preventing advanced AI semiconductor technology from reaching China.
Super Micro stock was changing hands around $35 during Tuesday’s premarket session.
