You might be surprised to know which of these two high-flying stocks is the better bet for investors right now.
Nvidia (NVDA -1.84%) And Super Microcomputer (SMCI -2.79%) The stock market has been a big winner in the past year, with impressive gains thanks to rising demand for artificial intelligence (AI) hardware and rising earnings.
While Nvidia stock has more than tripled in the past year, Super Micro's gains have been even more extraordinary, up 474%. It would not be surprising to see them maintain their red-hot momentum in the future. But if you had to choose between these two AI stocks for your portfolio right now, which one should you buy? Let's find out.
The case of Nvidia
Nvidia is playing a major role in promoting the adoption of AI through its graphics cards. The massively parallel computing power of the company's graphics processing units (GPUs) allows customers to train AI models, formally known as large language models (LLMs), and solve real-world problems. These models are also deployed to solve
Consumers around the world turn to Nvidia's hardware to enhance their AI capabilities, giving the chipmaker over 90% of the fast-growing AI chip market. And Nvidia's dominance continues here, as its rivals lag far behind. Advanced Micro DevicesFor example, pointed out on its recent earnings conference call that its revenue from sales of AI graphics cards will reach $4 billion in 2024.
IntelOn the other hand, in the second half of 2024 it is forecasting $500 million in revenue from sales of AI accelerators. For comparison, Nvidia ended its most recent fiscal year 2024 (which ended in January of this year) with data center revenue of $47.5 billion. Which was three times more than last year's income.
In short, Nvidia is simply running away from the market for data center chips, a trend that is expected to continue thanks to the company's solid product roadmap. The chipmaker recently revealed its next-generation Blackwell B200 GPU, which is expected to be four times faster in AI training and 30 times faster in AI estimation than the current flagship, the H100.
Nvidia's H100 has been a runaway success, and it wouldn't be surprising to see the next-gen offering help the company maintain its dominant position in the space. The company's revenue from the sale of AI chips is expected to grow at an eye-watering pace in the coming years.
Unsurprisingly, Nvidia's revenue forecasts for the next three fiscal years have taken a big bump of late.
NVDA revenue estimates for current fiscal year data via YCharts
The company ended fiscal 2024 with record revenue of $60.9 billion, and the chart above indicates that its top line could grow nearly 2.7 times in just three years. Nvidia's five-year average sales is 18.7. A similar multiple in three years would send its market cap to just over $3 trillion, up 35 percent from current levels.
Nvidia now trades at 36 times sales. So even a substantially discounted price over the next three years could potentially lead to impressive growth. However, don't be surprised to see Nvidia command a premium valuation right now thanks to its commanding position in the AI chip market, which is expected to grow by more than 36% annually by the end of the decade.
The case of the supermicrocomputer
Just like Nvidia, Super Microcomputer is also a play in the AI chip market. However, instead of designing chips, Supermicro AI makes server products that are equipped with Nvidia-like graphics cards.
Just like Nvidia, Super Micro is a key player in the market for AI servers. The company derives more than half of its revenue from the sale of AI servers. Super Micro generated $11.8 billion in revenue last year. Assuming half of that comes from sales of AI server products, Super Micro's revenue from the AI server market should ideally be $6 billion.
The AI server market was worth an estimated $12 billion last year, indicating that Supermicro probably controls half of that market. Looking ahead, analysts are expecting the global AI server market to reach $50 billion in annual revenue in 2029, achieving a compound annual growth rate of 26 percent. Supermicro, however, is growing at a much faster pace than the AI server market.
This is reflected in the company's latest results for the third quarter of fiscal 2024 (for the three months ending March 31). Super Micro's revenue tripled to $3.85 billion during the quarter on a year-over-year basis. The company also raised its full-year outlook and now expects to end fiscal 2024 with revenue of $14.9 billion, up 110 percent from last year.
So it looks like Super Micro AI is poised to grab a large share of the server market. This explains why analysts have substantially raised their growth expectations for Super Micro, as the following chart shows.
SMCI revenue estimates for current fiscal year data via YCharts
The chart above indicates that Super Micro is on track to nearly double its revenue over the next two years. Assuming the company achieves $27 billion in revenue after a few years and maintains its current price-to-sales ratio of 3.8, its market cap could rise to $103 billion. This would be a 124 percent increase from current levels.
More importantly, Super Micro's sales multiple is much lower than Nvidia's, and Super Micro stock is also trading at a discount to the US technology sector's average sales multiple of 6.8. So if the market decides to reward Super Micro with a higher multiple, it could deliver much stronger gains.
Decision
The signs are that Super Microcomputer stock could lead higher than Nvidia. Additionally, Super Micro is much cheaper than Nvidia, as both companies' sales multiples indicate. Moreover, analysts expect Super Micro's revenue to grow at a much faster pace than Nvidia's.
The AI server manufacturer's bottom line is forecast to grow at an annual rate of 62% over the next five years, surpassing the 35% annual growth that Nvidia delivered over the same period. So investors looking to buy either of these two AI stocks can consider buying Super Micro given its attractive valuation and the impressive growth it has posted.