Shares of Super Micro Computer (SMCI -2.48%), a darling of the generative AI revolution, tumbled as much as 28% on Wednesday after the server maker suffered a brutal one-two punch.

First, the company was the target of a short report from Hindenburg Research, which alleged a wide range of problems at the company, including undisclosed related-party transactions and accounting irregularities.

Shortly after that report was released, Super Micro Computer announced it would not file its 10-K annual report on time. The company said it needed additional time to “complete its assessment of the design and operating effectiveness of internal controls over financial reporting.”

The short-seller report didn’t appear to cause the late filing notice, but the two items combined certainly look like a red flag for Supermicro, as the server maker is also known.

Of the two issues, Hindenburg’s accusations seem like the more concerning problem at the moment since the late filing only matters if there are indeed accounting inconsistencies discovered. Hindenburg’s findings, if true, could be damaging over the long term, especially as Supermicro was previously fined by the SEC in 2020 for $17.5 million for insufficient “internal accounting controls.”

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What the short-seller attack means

A short report doesn’t always mean what the market thinks it does. While stocks tend to fall in response to short-seller attacks, it’s important for investors to understand the short-sellers releasing these reports want the stocks they target to fall so they can make money on their bets. Because of this financial incentive, short-sellers can exaggerate claims or allege problems without substantive evidence.

Stocks generally fall in response to a short report, but they don’t always stay down. One of the best ways to determine whether the Supermicro report will live up to scrutiny is to look at Hindenburg’s track record.

What’s Hindenburg’s history?

Hindenburg, founded by Nate Anderson, is one of the better-known activist short-sellers today. The company tends to focus on issues like accounting irregularities and undisclosed related-party transactions, and those are at the center of its attack on Supermicro. It was also twice named top short-seller by Activist Insight, in 2021 and 2022, showing it’s respected within the industry.

Hindenburg has had some wins in the past. The company may be best known for its attack on Nikola in 2020 and its CEO, Trevor Milton. Hindenburg called out what it deemed an ‘ocean of lies’ that Nikola had put forward ahead of its planned partnership with General Motors.

Hindenburg accused the company of using a “pusher” — a car that didn’t work — in a promotional video, which Nikola later admitted. The report led to Milton’s resignation, and he was eventually indicted and sentenced to four years in prison.

Hindenburg also called out trouble at Lordstown Motors in 2021, saying the company’s pre-order book was “largely fictitious.” Within a few years, the SEC charged Lordstown Motors with “misleading investors about the sales prospects of” its flagship vehicle.

However, Hindenburg hasn’t always been right. Last March, it attacked Block, the fintech company that owns Square and Cash App, causing the stock to plunge after it alleged fraud and a lack of regulatory compliance at the company.

Block never faced any regulatory or legal consequences from the report, and the stock has been essentially flat since the report came out.

Should you sell Supermicro stock?

The combination of the Hindenburg attack and the delay in its 10-K filing is certainly troubling for Super Micro Computer. Still, while it’s a setback for the company, without evidence, it’s not necessarily enough reason to sell the stock.

Investors should expect a response from management countering Hindenburg’s allegations, though that might come second to Supermicro’s delayed filing.

The good news for prospective investors is that Supermicro stock looks dirt cheap right now at a forward price-to-earnings ratio of 13, and it just posted another quarter of triple-digit revenue growth. The boom in the AI server market is very much real and has been confirmed by peers like Dell Technologies. However, given the uncertainty surrounding the company right now, shareholders should be prepared for heightened volatility going forward.