While Nvidia is a great investment, Wall Street sees Super Micro Computer as the better AI stock to buy now.
of Nasdaq 100 Tracking the world’s 100 largest non-financial companies Nasdaq Composite Index (^IXIC 0.40%)A growth-oriented index with a focus on the technology sector. Super Microcomputer (SMCI -1.35%) To exchange Walgreens Boots Alliance on the Nasdaq 100 Index before the market opens on Monday, July 22nd.
Supermicro has become increasingly popular among investors in recent months due to its role in the artificial intelligence (AI) economy. S&P 500 (SNPINDEX: ^GSPC) In March, the stock price forecast a 188% increase in the first half of 2024, surpassing 2020’s 150% gain. NVIDIA stock.
Wall Street expects this strong performance to continue: Supermicro’s median price target is $1,030 per share, which represents a 16% upside from the current price of $886, while Nvidia’s median price target is $133 per share, which represents a 4% upside from the current price of $128.
Supermicrocomputers have a lasting competitive advantage
Supermicro designs and builds computing platforms for enterprise and cloud data centers. The company’s portfolio spans storage systems and servers, including single devices and full rack solutions optimized for AI and high-performance computing. The company has deep ties with Nvidia, but also sources chips from suppliers such as: Am and Intel.
Supermicro is a “leading company in the AI computing market” JPMorgan Chase According to analyst Samik Chatterjee, the company has been rapidly gaining market share thanks to its engineering prowess and its proprietary building-block approach to product development: It does most of its research and development in-house and builds pre-assembled servers that can be quickly outfitted with the latest chips and interconnects.
As a result, Supermicro is able to bring new technologies to market two to six months faster than its competitors. Additionally, these server building blocks can be assembled in countless combinations, giving clients great flexibility when purchasing custom computing platforms. In fact, Supermicro claims to offer the broadest product portfolio in the industry.
Earlier this year, Rosenblatt Securities analyst Hans Mosesmann highlighted these advantages in a client note, saying: “Supermicro has developed a model that allows them to get to market very quickly. When new products come out of NVIDIA, AMD and Intel, they typically have the broadest product portfolios.”
Supermicro has also developed the building blocks for liquid-cooled AI servers and was one of the first to ship liquid-cooled racks at scale, which puts the company in an advantageous position: liquid cooling can reduce data center power usage by 40%. Supermicro expects 15% to 30% of data center installations to rely on liquid cooling over the next two years, up from less than 1% historically.
Supermicro’s stock is trading at a reasonable valuation relative to Wall Street’s earnings expectations.
The big picture is this: As businesses seek power-efficient AI servers powered by the latest chips, especially Nvidia’s graphics processing units (GPUs), they are turning to Supermicro, which is helping the company gain market share and extend its leadership.
surely, Bank of America Analysts expect Supermicro to account for 17% of AI server revenue by 2026, up from 10% in 2023. Even more bullish: KeyBank Analyst Tom Blakely said Supermicro could grab 23% of the market share by 2025. He also said the company has “competitive advantages” that could allow it to maintain, if not grow, its share in the coming years.
Wall Street analysts expect Supermicro to grow its adjusted earnings per share at 59% annually through fiscal 2025 (ending June 2025). This projection makes its current valuation of 46 times adjusted earnings look very reasonable.
To put that in perspective, Supermicro’s PEG ratio (price-to-earnings ratio divided by expected earnings growth rate) is roughly 0.78. Using the same methodology, Nvidia’s PEG ratio is currently roughly 1.4, meaning the company’s stock is (probably) much more expensive.
JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Bank of America is an advertising partner of The Ascent, a Motley Fool company. Trevor Jennewine invests in Nvidia. Motley Fool invests in and recommends Advanced Micro Devices, Bank of America, JPMorgan Chase, and Nvidia. Motley Fool recommends Intel and recommends buying January 2025 $45 calls on Intel and selling August 2024 $35 calls on Intel. The Motley Fool has a disclosure policy.
