Nvidia stock could crash if major client is delisted

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

The company has managed to secure outsized returns propped up by increasing AI demand from key industries. Nvidia now has a market capitalization equal to roughly 12% of the United States GDP. 

At press time, NVDA shares are trading at $136.84 — after shedding 3.08% on the weekly chart on account of broadly disappointing earnings and guidance from the tech sector. On a year-to-date (YTD) basis, the stock is up 184.10%.

Naturally, some worries that concern valuations have popped up. However, on top of general fears surrounding a potential AI bubble, there’s a much more specific catalyst that could serve to take the wind out of NVDA’s sails. 

On November 20, the chipmaker will release its Q4 2024 earnings report — and by then, one of its largest customers might very well be delisted and facing a Department of Justice (DOJ) investigation.

SMCI stock crash explained

Super Micro Computer Inc. (NASDAQ: SMCI) was one of the preeminent high-flying stocks of 2024 until recently. From the beginning of the year to August 27, SMCI had rallied by 89.61%.

Then, disaster struck — as renowned short-selling activist company Hindenburg Research released a damning report that alleged widespread accounting fraud and revealed that the firm had initiated a short position on SMCI stock.

A day later, the semiconductor business made an announcement that it would delay the filing of its annual 10-K report to the Securities and Exchange Commission (SEC). Shortly after, SMCI share price tanked by 30%.

In the aftermath of this revelation, Super Micro Computer stock traded in a range from $40 to $45, occasionally reaching as high as $47. On October 30, it became public that six days prior, the venture’s auditor, Ernst & Young (EY) had resigned. What followed was another 30% decrease in share price.

Interestingly enough, one savvy trader appears to have potentially had insider knowledge that this would happen — having placed an options trade that netted him roughly 3,000% returns.

At press time, on November 1, SMCI shares are trading at $26.88 — having lost 5.92% in value on the daily chart — finally turning the company’s year-to-date (YTD) returns negative at 5.80%.

The business must find a suitable auditor, file its 10-K report, and submit a compliance plan by November 16 — just four days ahead of NVDA earnings. If it fails to do so, it could risk being delisted from the NASDAQ.

How Super Micro Computer being delisted could affect Nvidia stock

Although NVDA does not name its biggest customers in the Q-10 filings it submits quarterly to the SEC — it does state how much of its revenue comes from these customers. 

Unfortunately, the filing paints the picture of a pretty concentrated revenue stream. Per the document, 46% of the chipmaker’s total revenue can be attributed to just 4 customers.

That form is dated August 28 — per Bloomberg supply chain analysis provided by bestselling author Lawrence McDonald on the same day, SMCI accounted for nearly 9% of Nvidia’s revenue — at present, it could be even more.

The fallout from Super Micro Computer’s fall will almost certainly be reflected in NVDA stock price following earnings, as a significant source of revenue is set to curtail demand — or suspend orders entirely.

What’s more, the development comes at a time when investors are largely skeptical of increased AI spending, unconvinced that sacrificing short-term profitability is worth it for something as-of-yet unproven. Having one of NVDA’s largest customers potentially turn out to be a fraud certainly doesn’t bode well — and might end up being the final straw for AI-weary investors before initiating a wider selloff.

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