Nvidia vs. Super Microcomputer

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Amid the ongoing artificial intelligence (AI) boom, shares of Nvidia (NASDAQ: NVDA ) And Super Microcomputer (NASDAQ: SMCI ) As of this writing, they have set the stock market on fire in 2024, gaining 166% and 197%, respectively. Thanks to increased demand for the AI-enabled hardware they sell, they have experienced a remarkable acceleration in their revenue and earnings growth.

Nvidia's dominance in the AI ​​chip market has translated into phenomenal growth, and Super Microcomputer is not far behind. Data center operators are turning to its modular server solutions to mount AI chips sold by Nvidia and other companies. However, if you're looking to add AI stocks to your portfolio and have to choose between the two, which one should you buy now?

The case of Nvidia

Nvidia reportedly controls 94% of the overall AI chip market by the end of 2023. The company's results for the first quarter of its fiscal year 2025 (which ended on April 28) suggest that its dominance is on track for another year of impressive growth. .

Revenue grew an impressive 262 percent year-over-year to $26 billion. Its impressive pricing power led to a 461% jump in adjusted earnings to $6.12 per share. Management's revenue guidance of $28 billion for the current quarter shows its top line is on track to grow 107% year-over-year, an acceleration from the 101% growth it delivered in the same period last year. Will be.

However, emerging growth paths in the nascent AI market indicate that Nvidia can do even better. For example, governments around the world are reportedly pouring a lot of money into AI infrastructure, and sovereign investment in AI technology is expected to contribute $10 billion to Nvidia's top line this fiscal year. , compared to nothing in the previous one.

More specifically, governments are trying to build large-scale language models (LLMs) in local languages ​​based on country-specific data. On Nvidia's May conference call, management pointed out that Japan, France, Italy, and Singapore are already investing in AI infrastructure. It expects more countries to join the bandwagon. “The importance of AI has captured the attention of every nation,” said CFO Colette Kress.

For example, Saudi Arabia is reportedly looking to invest $40 billion in AI initiatives, while China's AI-focused spending is forecast to exceed $38 billion by 2027. Train the LL.M.

In short, Nvidia's customer base is diversifying beyond large cloud infrastructure providers that are deploying large numbers of their chips to train and deploy AI models. Spending on AI chips is expected to grow more than 10-fold over the next decade, driving revenue to $341 billion in 2033 from $23 billion last year. The stage seems set for Nvidia to maintain its strong growth as it takes concrete steps to ensure it remains the dominant player in this space.

That's why analysts have predicted that the company's top line will continue to grow at a healthy pace from a reading of around $61 billion in fiscal 2024.

NVDA Revenue Estimates for the Current Fiscal Year Chart

Therefore, Nvidia should remain a top AI stock as the race by companies and governments to develop AI applications has provided a secular growth opportunity.

The case of the supermicrocomputer

Supermicro's development is somewhat intertwined with Nvidia. Data center operators need the kind of server rack solutions that SuperMicro sells to mount processors sold by Nvidia and other chipmakers. Therefore, it is not surprising that the demand for Super Micro's servers has increased easily.

In the third quarter of its fiscal year 2024, which ended March 31, its revenue grew 200% year-over-year. Non-GAAP net income per share, meanwhile, rose a whopping 307%. So, Super Micro isn't far behind Nvidia when it comes to how AI has supercharged its fortunes. The company is guiding for revenue of $14.9 billion in the current fiscal year ending this month. That would be a big jump from the $7.1 billion in revenue it reported in fiscal 2023.

More importantly, analysts expect its top line to nearly double over the next two fiscal years.

SMCI Revenue Estimates for Current Fiscal Year Chart

The good news is that Super Micro can maintain a healthy pace of growth over the next two financial years. This is because the demand for AI servers is expected to grow at a compound annual rate of 25% through 2029. The market is expected to generate more than $17.5 billion in 2022, with annual revenue of around $73 billion after five years.

Supermicro is currently growing at a faster pace than the AI ​​server market. As it turns out, its growth is faster than that of more established companies such as Dell Technologies, which has sold $3 billion worth of AI servers in the past three quarters. Supermicro generated $9.6 billion in revenue over the past three quarters, with more than half of its revenue coming from sales of AI-related server solutions.

Super Micro has managed to carve out a niche in the AI ​​server market despite the presence of big players. Also, with the steps that the company is taking to increase its production utilization rate and its productivity, it can capture a larger share of the AI ​​server market in the future.

Like Nvidia, even Supermicro looks like a solid long-term AI play. But is it worth buying on Nvidia?


Both Nvidia and Supermicro are high-growth companies that are benefiting greatly from the spread of AI. So investors' choice about which stocks they want to buy now will drive up prices. Super Micro is significantly cheaper than Nvidia as far as their earnings and sales multiples are concerned.

SMCI PE Ratio Chart

However, in terms of price/earnings-growth (PEG) ratios, the story is a bit more interesting. That metric is a forward-looking valuation that is determined by dividing a company's past earnings by a multiple of the revenue growth it is expected to deliver in future periods. Any (positive) PEG ratio below 1 is seen by most investors as indicative of a bargain stock. And on this metric, both Nvidia and Supermicro are undervalued.

SMCI PEG Ratio Chart

So at least by one forward-looking measure, both Nvidia and Supermicro are attractive buys for those looking to add growth stocks to their portfolios. More importantly, both these companies are capable of delivering the impressive growth that the market expects from them, thanks to the lucrative opportunities they are sitting on. And that's why investors can consider buying any stock despite its strong gains so far this year.

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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions and recommends Nvidia. The Motley Fool has a Disclosure Policy.

Better Artificial Intelligence (AI) Stocks: Nvidia vs. Super Microcomputers was originally published by The Motley Fool.

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