Super Micro Computer Crashed Today – Should You Buy AI Stock Before the Stock Split on October 1st?

Super microcomputer (NASDAQ:SMCI) The stock plunged today after news that the company is under investigation by the Department of Justice (DoJ). The server specialist's share price ended the trading day down 12.2%; at the start of the session it was even down 18.6%.

The Wall Street Journal reported today that the U.S. Department of Justice is in the early stages of an investigation into Supermicro. According to the report, the investigations are likely related to allegations of poor accounting practices made in a short-seller note published by Hindenburg Research in late August.

After today's big sell-off, Supermicro stock is now down 66% from the high it hit earlier this year. Despite the valuation decline, the company remains on track to complete a 10-for-1 stock split that will take effect on October 1st.

Is Supermicro a buy before the stock split?

Supermicro has faced strong downward pressure recently, but it's possible that the negative sentiment surrounding the stock is overblown. First of all, the US Department of Justice has not yet announced an official investigation into the company. Even if an investigation were to take place, it would not necessarily mean that there was actual impropriety.

The Justice Department has recently increased scrutiny of large technology and financial companies in general, bringing antitrust lawsuits against companies such as: Apple, alphabetAnd visa. It's unlikely that Supermicro will face antitrust scrutiny, but the Justice Department's recent spate of activity provides some background context worth considering.

If an investigation into Supermicro by the U.S. Department of Justice is underway, Hindenburg's claims that she found evidence of new accounting violations by the tech company may have been a key catalytic factor. However, it is important to remember that Hindenburg is a short seller and profits if the valuations of the companies he bet do not decline.

The lack of transparency about the company's prospects means that Super Micro Computer stock is not well suited for investors without above-average risk tolerance. On the other hand, investors willing to accept risk and uncertainty could reap big returns by using the recent sell-offs as a buying opportunity.

After today's share price drop, Supermicro is trading at just 12 times this year's expected earnings and less than 85% of expected sales. While the company is expected to experience a cyclical slowdown, that's a cheap-seeming valuation for a company that's seeing stellar sales and profit growth thanks to artificial intelligence (AI)-driven demand. If the technology specialist finds success with liquid cooling technologies that help differentiate its high-performance rack servers, Supermicro stock could weather the recent controversies and come back with flying colors.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Apple and Visa. The Motley Fool has a disclosure policy.

Super Micro Computer Crashed Today – Should You Buy AI Stock Before the Stock Split on October 1st? was originally published by The Motley Fool