Super Micro Computer shares tumbled Friday after the company's co-founder and two others were charged with illegally funneling restricted AI hardware to China.

The three were accused of violating U.S. export laws by sending American servers with Nvidia's cutting-edge chips to China through intermediaries.

Supermicro shares could be set to lose over a quarter of their value in a single session.

Shares of Super Micro Computer (SMCI) were down over 28% in early trading Friday after the server maker's co-founder Yih-Shyan “Wally” Liaw, along with a company employee and a contractor, were charged with illegally smuggling American AI hardware to China.

The Department of Justice alleges the three conspired to violate U.S. export laws by funneling billions of dollars worth of servers containing restricted, cutting-edge Nvidia (NVDA) AI chips to customers in China through intermediaries.

Supermicro said in a statement that it has placed Liaw and the company's employee on leave, while severing its relationship with the contractor. The company said it has fully cooperated with the government's investigation and plans to continue doing so.

Nvidia said that, with the expansion of export regulations, it has worked with the government and customers on compliance programs. "Unlawful diversion of controlled U.S. computers to China is a losing proposition across the board—NVIDIA does not provide any service or support for such systems, and the enforcement mechanisms are rigorous and effective," the company said in a statement.

The development could undermine confidence in Supermicro's stock, which has struggled to reclaim its 2024 highs after a series of scandals, including the resignation of the company's auditor and delays in its regulatory reporting.

Friday's plunge dragged shares of Supermicro to their lowest level since late 2024, when the company faced speculation about its accounting practices after EY resigned as the company's auditor, and the threat of being delisted from the Nasdaq for delaying required regulatory disclosures. Those concerns later abated after the company filed its delayed reports in early 2025.

"While AI sales remain strong with management expressing confidence in expectations, we expect accounting issues to remain at the forefront of investor minds," Citi analysts said on Friday.

WIth today's steep decline, Supermicro shares have lost more than 40% of their value over the past 12 months.

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