The S&P 500 has a Super Micro-sized problem on its hands

Server builder Super MicroComputer has not been without its controversies. Despite that, it has found a home in the 401(K)s, IRAs, and brokerages of millions of American investors. It’s costing them, even if they don’t know it.

The first warning

In 2020, the fast-growing computer hardware company was forced to settle with the Securities and Exchange Commission (SEC) after it charged the company and its former CFO for allegedly overstating revenue and understating expenses. Nonetheless, they persisted.

Then, its stock took off, soaring over 2,000% over the next four years. The S&P 500 selection committee had seen enough. In Mar. 2024, it was given the green light to join the prestigious list American index.

But despite the impressive heights that Super Micro stock had ascended to gain inclusion, it was about to come undone. Following the announcement of its addition to the index, the stock peak at an all-time high of $122.90. It would be generous to call what came next a “fall from grace.”

The second warning

At a nearly $35 billion valuation, a short seller report from fraud sniper Hindenburg Research accused the company of “accounting manipulation, sibling self-dealing, and sanctions evasion.” The company categorically denied the accusations, but come Oct. 2024, accounting giant Ernst & Young made a decision which more or less confirmed that there was a problem.

That month, the firm’s auditor dropped them amid concerns about the company’s internal governance, controls, compliance, and “financial representations.” In other words, they couldn’t vouch for the accuracy of what Super Micro was telling them.

The departure of EY forced the firm to delay quarterly reports, issue unaudited interim earnings, and seek a new auditor. The company plummeted to a record low. But like in 2020, they persisted. They appointed a new auditor, which certified their FY 2024 financials in Feb. 2025.

And even though they flagged “internal control issues”, the company picked up fervor as the market began to treat it like a “rare ultracheap tech stock.” The stock doubled below its Nov. 2024 all-time low and Oct. 2025, clawing back above $51/share for a brief period of time. But soon, history would repeat itself again.

What happened with Super Micro?

Super Micro fell nearly 30% on Friday after Co-Founder Yih-Shyan “Wally” Liaw was charged with selling $2.5 billion dollars worth of the company’s servers to China in violation of export control regulation. The scheme also involved a manager for the company and a contractor.

Because of national security concerns, the export of certain AI chips from Nvidia and Advanced Micro Devices to China is heavily restricted. Despite that, Liaw and accomplices utilized a pass-through entity which purchased the servers and then shipped them to customers in the region, circumventing export controls.

The case does not explicitly name Super Micro for violating export controls, but given the company’s past indiscretions, it stands to reason that worries about “self-dealing” and “financial representations” in the past are likely related to the company’s latest problem. FT reports that the indictment shows that Liaw’s “side hustle” was responsible for $100 million in quarterly revenue during the final quarter of its 2024 fiscal year.

That might feel like pennies compared to the billions that it made that year, but we don’t know the full extent

Fool me once… twice… thrice?

Super Micro had all the elements that were desirable for index inclusion, but the S&P 500 has repeatedly demonstrated that it is easily duped by a good tech story. Its past transgressions were cast aside for the promise of future returns.

That’s not to say that it’s time to sell your S&P 500 fund, but it is a sign that even so-called “passive” funds are not infallible. In the case of the S&P 500, they are subject to the whims and biases of a selection committee focused on identifying and buying momentum.

Oftentimes, that doesn’t seem to work out at first. The index’s addition of Tesla in 2020 saw the company’s stock pump 70% ahead of its inclusion. It then struggled to contribute meaningfully to the index for years, until 2025 when its stock started moving again.

More recent additions demonstrate how difficult it is to make an impact immediately. Outside of firms like Palantir, which had an immediate impact, some of the index’s recent quarterly additions are trading well below their prices on addition day: AppLovin, Coinbase, Apollo Global, Workday,Ares Management, and Robinhood just to name a few.

But in many ways, Super Micro is in a unique class all its own. Nearly two years to the day since its serendipitous addition to the index, it is still afflicted by a controversy which made the stock collapse over 80%. It is nearly at all-time lows and remains part of the index despite having a market cap that would have precluded it from addition in the first place.

It would be generous to disregard the frequency of these management accounting entanglements; in 2020, 2024, and now. At the end of the day, whatever they’re selling might just not be worth the frustration of “holding out” for a comeback. To that end, it might be a more generous spend of resources for the selection committee to stop depriving investors of an opportunity to be served by a company which has not demonstrated a pattern of what can only be described as “bad business.”

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