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Nvidia vs. Super Micro Computer

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Nvidia (NASDAQ: NVDA) and Super Micro Computer (NASDAQ: SMCI) have been big winners on the stock market in the past year, delivering stunning gains as their revenue and earnings growth soared thanks to growing demand for artificial intelligence (AI) hardware.

While Nvidia stock has more than tripled in the past year, Super Micro’s gains have been even more phenomenal at 474%. It wouldn’t be surprising to see them sustain their red-hot momentum in the future as well. But if you have to choose one of these two AI stocks right now for your portfolio, which one should you be buying? Let’s find out.

The case for Nvidia

Nvidia is playing a crucial role in boosting the adoption of AI through its graphics cards. The massive 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 also deploy those models to solve problems in the real world.

Customers across the globe have flocked to Nvidia’s hardware to shore up their AI capabilities, giving the chipmaker a 90%-plus share of the fast-growing AI chip market. And Nvidia’s dominance seems here to stay, as its competitors are way behind. Advanced Micro Devices, for instance, pointed out on its most recent earnings conference call that its revenue from sales of AI graphics cards would land at $4 billion in 2024.

Intel, on the other hand, is forecasting $500 million in revenue from selling AI accelerators in the second half of 2024. Nvidia, for comparison, finished its most recent fiscal year 2024 (which ended in January this year) with data center revenue of $47.5 billion, which was more than triple the revenue in the preceding year.

In short, Nvidia is simply running away with the market for data center chips, a trend that’s 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 a whopping 30 times faster in AI inference when compared to the current flagship, the H100.

Nvidia’s H100 has been a runaway success, and it wouldn’t be surprising to see the next-generation offering help the company maintain its dominant position in this space. The company’s revenue from sales of AI chips is expected to multiply at an eye-popping pace in the coming years.

Not surprisingly, Nvidia’s revenue forecasts for the next three fiscal years have received a big bump of late.

NVDA Revenue Estimates for Current Fiscal Year Chart

The company finished fiscal 2024 with record revenue of $60.9 billion, and the chart above indicates that its top line could multiply nearly 2.7x in just three years. Nvidia has a five-year average sales multiple of 18.7. A similar multiple in three years would send its market cap to just over $3 trillion, a jump of 35% from current levels.

Nvidia is trading at a rich 36 times sales now. So even a substantially discounted valuation after the next three years could lead to a potentially impressive upside. However, don’t be surprised to see Nvidia commanding a premium valuation at that time thanks to its commanding position in the AI chip market, which is expected to clock annual growth of more than 36% through the end of the decade.

The case for Super Micro Computer

Just like Nvidia, Super Micro Computer is also a play on the AI chip market. However, instead of designing chips, Super Micro manufactures AI server products on which the graphics cards from the likes of Nvidia are mounted.

Just like Nvidia, Super Micro is a key player in the market for AI servers. The company gets more than half of its revenue from selling AI servers. Super Micro has generated $11.8 billion in revenue in the past year. Assuming half of that has come from selling AI server products, Super Micro’s revenue from the AI server market should ideally stand at $6 billion.

The AI server market was worth an estimated $12 billion last year, indicating that Super Micro may be controlling half of this market. Looking ahead, analysts are expecting the global AI server market to hit $50 billion in annual revenue in 2029, clocking a compound annual growth rate of 26%. Super Micro, however, is growing at a much faster pace than the AI server market.

This is evident from the company’s latest results for the third quarter of fiscal 2024 (for the three months ended March 31). Super Micro’s revenue tripled on a year-over-year basis during the quarter to $3.85 billion. The company also raised its full-year outlook and now expects to finish fiscal 2024 with revenue of $14.9 billion, which would be a 110% increase over the previous year.

So Super Micro seems set to gain a bigger share of the AI server market. This explains why analysts have substantially raised their growth expectations for Super Micro, as evident from the following chart.

SMCI Revenue Estimates for Current Fiscal Year Chart

SMCI Revenue Estimates for Current Fiscal Year Chart

The chart above indicates that Super Micro is on its way to almost doubling its revenue in the next two years. Assuming the company does hit $27 billion in revenue after a couple of years and maintains its current price-to-sales ratio of 3.8 at that time, its market cap could jump to $103 billion. That would be a 124% 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 U.S. 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.

The verdict

The signs are that Super Micro Computer stock could deliver more upside than Nvidia. Moreover, Super Micro is way cheaper than Nvidia, as the sales multiples of the two companies indicate. What’s more, analysts are expecting Super Micro’s earnings to increase at a much faster pace than Nvidia’s.

The AI server manufacturer’s bottom line is forecast to increase at an annual rate of 62% over the next five years, outpacing the 35% annual growth that Nvidia is expected to deliver over the same period. So investors looking to buy one of these two AI stocks could consider buying Super Micro given its attractive valuation and the outstanding growth that it has been posting.

Should you invest $1,000 in Nvidia right now?

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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices and Nvidia. The Motley Fool recommends Intel and recommends the following options: long January 2025 $45 calls on Intel and short May 2024 $47 calls on Intel. The Motley Fool has a disclosure policy.

Better Artificial Intelligence (AI) Stock: Nvidia vs. Super Micro Computer was originally published by The Motley Fool

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