Happy Friday! We have a critical jobs report due this morning.

Economists predict the US added 105,000 jobs in October. If that holds, it’d be the lowest since December 2020. More on that later.

Today’s edition focuses on the falling knife that is Super Micro Computer.

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Super Micro’s super collapse

When your accountant says they don’t trust your financial statements enough to be associated with them, odds are it isn’t the accountant who’s in trouble. 

That’s the same conclusion Wall Street seems to have drawn about Super Micro Computer. 

The chip company — one of Nvidia’s biggest customers — dropped more than 40% over the last two trading sessions after Ernst & Young resigned as its accountant. 

EY deployed choice language in explaining the move: 

“We are resigning due to information that has recently come to our attention which has led us to no longer be able to rely on management's and the Audit Committee’s representations and to be unwilling to be associated with the financial statements prepared by management, and after concluding we can no longer provide the Audit Services in accordance with applicable law or professional obligations.”

Super Micro, meanwhile, said it “disagrees” with EY and is now working to find new auditors. 

Woo Jin Ho, a senior hardware and networking analyst at Bloomberg Intelligence, told me that this news is “fairly significant” for the business.

Over the next year or two, in his view, some of Super Micro’s customers could begin to look elsewhere if the accounting inconsistencies hold. 

All this comes eight weeks after the short-seller Hindenburg Research published a report alleging that Super Micro engages in accounting manipulation, among other red flags.

“All told, we believe Super Micro is a serial recidivist,” the short-seller wrote on August 27.

“It benefitted as an early mover but still faces significant accounting, governance and compliance issues and offers an inferior product and service now being eroded away by more credible competition.”

Remember, Super Micro’s stock started the year even hotter than Nvidia, though that trend reversed in August.

Risks to Super Micro stock

While Super Micro is slated to report earnings November 5 — election day — it may not be able to provide any guidance because it lost its auditor. 

A couple weeks after the company will have to file an updated 10-K to Nasdaq, which Bloomberg Intelligence’s Ho said is likely they request an extension on. 

“If the extension isn’t granted, the delisting proceedings start,” Ho said. “If the Nasdaq does grant an extension, Super Micro gets a lifeline until February.” 

The bigger risk, however, is that Super Micro could get kicked out of the S&P 500 if the Nasdaq delists the stock.

“Index funds all own the S&P 500, so there’s a bunch of [Super Micro] stock in funds that will be forced out and unloaded if the company gets kicked out,” Ho said. “You could see volatility and a corporate event unrelated to fundamentals.” 

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Elsewhere:

📈Amazon reported solid earnings. The stock climbed in after-hours trading as the retailer beat revenue forecasts and gave strong guidance for the upcoming quarter. In the most recent three months, Amazon saw net sales of $158.9 billion, above expectations for $157.3 billion. (Business Insider)

🍎Apple beat earnings expectations too. But unlike Amazon, the stock slipped in overnight trading. In the last quarter, Apple paid a one-time income tax charge of $10.2 billion to resolve a case related to taxes in Ireland. In that stretch the company reported $94.93 billion in revenue, above expectations for $94.58 billion. (CNBC)

👀 ChatGPT’s new search bar is live. OpenAI has raised the stakes in its competition with Google, announcing a search tool with real-time web answers on its popular AI tool. CEO Sam Altman said the new feature “probably doubled my usage” of ChatGPT over the last few weeks. (MIT Technology Review)

🏦 The Fed got some good news. The personal-consumption expenditures price index, known both as the PCE and the Fed’s preferred inflation gauge, cooled as expected for a 2.1% rise compared to last September. That’s down from the 2.2% seen the month prior. (WSJ)

Rapid-fire:

Interview:

I joined Anthony Pompliano, CEO of Professional Capital Management, for a conversation about bitcoin’s strong election-year performance, the stock market’s latest rally, and the merits of betting markets.

Election odds according to Kalshi, the biggest US prediction market:

Last thing:

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