AppLovin

What is it with these short sellers? I write an article highlighting issues at a company and give a negative view, and within a few months, I see a short seller report come out. Hindenburg came out with its report on SMCI some months after my May 2024 article.

Now we have two short seller reports on AppLovin (APP) in less than a month and a half since I wrote about APP. In my January 13 article about APP, I highlighted a broad swath of issues but also debunked some of the ongoing negative reports and gave it an intrinsic value of 191. It was trading at 325.

However, while I said it could go lower than 159, I warned my readers not to short APP. Saving money by staying away is much better than trying to be a hero by shorting crazy parabolic stocks.

Since my article in January, APP went from 325 to 507 and is now back at 325. The issue with the short seller reports is that they got the basic thesis wrong. It just came out that they didn’t understand APP’s business model. Hence, after one day of volatility, APP stabilized. Over months or even a year or more, their call may come out right, but they will get burned in the short term. Here is an example of that.

At the height of the SMCI drama, anonymous accounts started asking about CVNA and whether there was any fraud. I looked at it and concluded that there was none, and if there were a “there-there,” it would be in the convoluted web of subsidiaries and VIEs.

Guess what? Hindenburg hit CVNA on exactly that in January. I called the report baseless and bereft of facts and that it didn’t highlight any fraud. Well, immediately, CVNA rallied hard, and bye-bye Hindenburg.

I remember the day when my friend Jake—you've probably seen his videos, I blasted them to you—wondered last year, “Why didn’t the WSJ give you credit for exposing SMCI?” I smirked. Not at him but corporate media.

Maybe these short sellers should give me a call once in a while.

Tesla

Over three years, I have had the goods on TSLA. Some friends here know that and have always wondered why I never spoke about the details. I know from experience that it can take a long time before reality catches on, no matter the facts. After all, I learnt about frauds by watching Enron and Worldcom play out right in front of my eyes.

In any event, I finally got around to writing about TSLA on February 8. So, why now?

See, no matter what one said, TSLA would keep going up because of its massive fan following. The only way reality would catch up with TSLA was when the fanboys’ perception changed. Well, we know what has happened over the last two months. Now, it is just a matter of time. Sit back with the popcorn and watch a generational crash.

The icing on the cake this week was when Mexican billionaire Carlos Slim canceled his partnership with Starlink.

Preliminary reports suggest it would cost Musk anywhere from $7 billion to $29 billion, not counting all the future revenues. So, it is not just TSLA; Musk’s other businesses are coming under heavy fire.

However, let me share some short-term bullish news coming to TSLA shareholders. Based on ground reports, TSLA has leased its first showroom space of about 4K sq. ft. in Mumbai, India. Another lease is being finalized in India’s capital, New Delhi. Apparently, there was a breakthrough on the tariffs front for imported cars when India’s Prime Minister Modi visited the US recently.

All that said, the relationship between politicians and businessmen is pretty simple. As long as one is useful to the politician, everything is cool; once it is not, see ya.

Look no further than what happened with Enron’s Kenneth Lay. Ken was GWB’s largest donor during Bush’s run for Governor of Texas. When Enron was imploding in 2001, Bush was asked about Ken. Bush said, “I don’t know who he is.”

Supermicro Computer

SMCI hit my radar on February 25, 2024. Coincidently, SMCI’s deadline to file the delayed 10K for the period ending June 30, 2024, was February 25, 2025. Life sure does work in mysterious ways.

SMCI closed at 45.54 on February 25. After hours, the stock shot up 20% once SMCI filed the 10K with no material restatements of financials, just meeting the final deadline set by NASDAQ. I thought, "Fair enough. Good for them." Then, I pulled up the 10K on SEC’s EDGAR, scrolled down to the table of contents, and clicked “Changes in and Disagreements with Accountants on Accounting and Financial Disclosure” (Page 121, Item 9). Read from pages 121 to 125 and said:

To be fair, it is not uncommon for auditors to give an adverse opinion on internal controls yet sign off on the financials. It is the auditors' way of saying, “These guys may have messed up a bit, but the financials are fine.” However, like everything else in life, there is a context.

• Given SMCI’s checkered history, an adverse opinion on internal controls is a major red flag.

• Also, E&Y resigned over such issues, and SMCI still didn’t have time to address the problems.

• SMCI gave no timeline by when the issues will be addressed.

It gets better. The core of my May 2024 article was based on the previous 10K. Guess what? All the stuff is still in there in the current 10K, and add to that what I have unearthed about sanctions violations.

I read through the news articles and saw them quoting jubilant posts on social media and how the people who highlighted issues were wrong all along. There was no mention of the adverse opinion and the fact that the issues highlighted last year remain. My reaction:

On the 26th, SMCI opened up 20%—hitting a high of 56.11 along the way—and I was like: What a gift!!! I was patiently waiting for the mainstream media to figure out the adverse opinion part. Around mid-day:

The slide began. SMCI closed at 51.11, up around 12%. Considering everything, it was not a bad outcome for the believers. But on 27th SMCI crashed over 15%.

Some may say it fell in sympathy with NVDA’s 8% fall. To a certain extent, yes, but that logic doesn’t hold ground as NVDA closed up 4% on Friday, but SMCI ended the day down 3.5% to close at 41.46. Traders may have made hay during this volatility, but the believers who didn’t bother to read and comprehend the repercussions are now underwater.

As for SMCI’s future. Why would any institutional investor even go near the stock given its governance issues and all the known and unknown skeletons in the closet? Plus, it is a low-margin commodity business that can easily be undercut by someone with operations in Southeast Asia.

All of this makes good theater. That should be the end all and be all for retail investors. Go buy something like PNC. It is up 3.2% since I wrote about it on the 25th for my premium members. You will sleep better.

It has been an interesting ten months since my SMCI article, and I have written about many other companies along the way. There have been a few misses. For example, I failed to foresee the turnaround in SNOW; however, I got most of it right. I updated the “About Us” page to highlight this blog’s track record with annotated charts. Check it out.