The stock has outperformed Nvidia so far this year.
When considering the winners in artificial intelligence (AI), NVIDIA (NVDA 2.63%) The first name that comes to mind might be NVIDIA: the company controls 80% of the AI chip market, and its graphics processing units (GPUs) power some of the most critical workloads. This dominance has led to NVIDIA’s revenue growing by triple digits in recent quarters, and its stock price following suit.
But in the long run, I expect another company will benefit even more from the AI boom than Nvidia. This company will not only win when it launches new products, but also when Nvidia or one of the world’s top chip designers releases something new.
Plus, the company has reported soaring profits in recent years, and its stock has outperformed Nvidia’s this year: Its shares are up more than 180%, while Nvidia’s shares are up 140%. Let’s take a closer look at this company that is a winner in AI for today and the future.
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A company with 30 years of history
The company I’m talking about Super Microcomputer (SMCI -1.80%)Supermicro is a manufacturer of servers, workstations, and full rack-scale solutions found throughout AI data centers. Supermicro has been around for over 30 years, but its business has really grown in recent years, thanks to the AI boom.
For example, Supermicro’s liquid cooling technology has had only around 1% market share throughout most of the company’s history. Now, the company expects that within the next two years, 30% of all data center operations will use liquid cooling. Liquid cooling solves the problem that AI’s powerful computing power generates large amounts of heat, which is expected to continue even as capabilities increase.
The popularity of Supermicro’s products and liquid cooling capabilities has seen revenue soar. The company recently announced quarterly revenue of $3 billion for the first time, which is the same revenue level it reported for the full year of 2021. In its latest earnings call, the company said demand for its full-rack-scale solutions continues to be at record levels.
Demand for Supermicro’s products is expected to continue to grow as analysts predict the AI market will grow from approximately $200 billion today to more than $1 trillion in the next decade.
Expanding profit opportunities
But why is this company better positioned to benefit from the AI boom than Nvidia? Nvidia’s revenue opportunities grow with each new product release, which is true for most companies. But Supermicro believes its revenue opportunities grow with each new product release by Nvidia, SmartCore, and other major chip companies. Advanced Micro Devicesrelease a new chip.
This is because Supermicro is integrating these chips into its own products to create new ones for its customers. To ensure this new wave of revenue happens without delay, Super Micro is working closely with chipmakers to monitor their release schedules so they can be ready to customize products for their customers as soon as possible.
The strategy has worked: Supermicro has achieved a growth rate five times higher than the industry average over the past 12 months.
Going forward, the company should benefit from Nvidia’s planned release of its new Blackwell architecture and chips later this year. But as mentioned above, Supermicro’s sales will increase as other chipmakers launch their products, so the company’s fortunes will not be limited to one chipmaker. Meanwhile, Nvidia’s success will depend on its ability to continue to pull far ahead of its competitors.
That’s why I predict Supermicro, buoyed by the growth of various large AI companies, will benefit more from the AI boom than chip giant Nvidia.
What does this mean for investors? If you’re looking for a stable AI stock for the long term, Supermicro may be a safer investment than Nvidia, and it has demonstrated an ability to deliver particularly strong returns.
Additionally, Supermicro’s stock is trading at 24 times forward earnings compared to Nvidia’s 43 times, making it look very cheap given its growth to date and future prospects. As such, now is a great time to invest in what could be one of the biggest winners in the AI growth story.
Adria Cimino has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Advanced Micro Devices and Nvidia. The Motley Fool has a disclosure policy.
