Nvidia shares could crash if a major customer is taken private

Semiconductor titan Nvidia (NASDAQ: NVDA) is one of the best performing stocks of 2024, only lagging AI sympathy game Vistra Corp (NASDAQ: VST).

The company has managed to secure outsized returns, supported by increasing demand for AI from key industries. Nvidia now has a market capitalization equal to approximately 12% of United States GDP.

At the time of writing, NVDA shares are trading at $136.84 – after losing 3.08% on the weekly chart due to generally disappointing earnings and guidance from the technology sector. Year-over-year (YTD), the stock is up 184.10%.

Of course, some concerns related to valuations have surfaced. However, on top of the general fear surrounding a potential AI bubbleis there a much more specific catalyst that could take the wind out of NVDA’s sails.

On November 20, the chipmaker will release its fourth-quarter 2024 earnings report — and by then, one of its biggest customers could very well be delisted and face a Department of Justice (DOJ) investigation..

SMCI Stock Crash Explained

Super Micro Computer Inc. (NASDAQ: SMCI) was until recently one of the leading stocks of 2024. From the beginning of the year to August 27, SMCI was up 89.61%.

Then disaster struck – like the well-known short-selling activist company Hindenburg Research released a damning report which alleged widespread accounting fraud and revealed that the company had shorted SMCI stock.

A day later the semiconductor industry made an announcement that it would delay the filing of its annual 10-K report with the Securities and Exchange Commission (SEC). Shortly afterwards, SMCI’s share price plummeted by 30%.

In the wake of this revelation, shares of Super Micro Computer traded in a range of $40 to $45, reaching as high as $47 at times. On October 30, it was announced that six days earlier the company’s accountant, Ernst & Young (EY), had resigned. What followed was another price drop of 30%.

Interestingly, a smart trader appears to have potentially had foreknowledge that this would happen – after placing an option trade that paid off. approximately 3,000% efficiency.

At the time of writing, on November 1, SMCI stock is trading at $26.88 – having lost 5.92% on the daily chart – ultimately leaving the company’s year-to-date (YTD) return negative will be 5.80%.

The company must find a suitable auditor, file its 10-K report and submit a compliance plan by November 16 – just four days before NVDA earnings. If the company doesn’t do this, it risks being delisted from NASDAQ.

How the cancellation of Super Micro Computer could affect Nvidia stock

Although NVDA has its largest customers in the Q-10 applications it reports quarterly to the SEC – it does report how much of its revenue comes from these customers.

Unfortunately, the filing paints the picture of a pretty concentrated revenue stream. According to the document, 46% of the chipmaker’s total revenue can be attributed to just four customers.

That form is dated August 28 – according to Bloomberg supply chain analysis from bestselling author Lawrence McDonald on the same day, SMCI accounted for almost 9% of Nvidia’s revenue – at this point it could be even more.

The fallout from Super Micro Computer’s fall will almost certainly be reflected in NVDA’s share price after earnings, as a key source of revenue will limit demand – or suspend orders entirely.

Moreover, the development comes at a time when investors are doing the same largely skeptical of increased AI spendingnot convinced that sacrificing short-term profitability is worth it for something that hasn’t yet been proven. The fact that one of NVDA’s biggest customers turns out to be potentially fraudulent certainly doesn’t bode well — and could ultimately be the final straw for AI-fatigued investors before they trigger a broader sell-off.

Featured image:
Tigarto, Porto, Portugal – May 1, 2024. Digital image. Shutterstock