Best Artificial Intelligence (AI) Stock: Nvidia vs. Super Micro Computer | The motley idiot

Nvidia (NVDA 2.36%) i super microcomputer (SMCI 3.38%) have been big winners in the stock market over the past year, posting impressive gains as their revenue and earnings growth soared thanks to growing demand for artificial intelligence (AI) hardware.

While Nvidia shares have 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 keep their blazing momentum going into the future as well. But if you now have to choose between these two AI stocks for your portfolio, which one should you buy? Let’s find out.

The case of Nvidia

Nvidia is playing a crucial role in driving the adoption of AI through its graphics cards. The massive parallel computing power of the company’s graphics processing units (GPUs) enables 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 around the world have flocked to Nvidia hardware to bolster their AI capabilities, giving the chipmaker a more than 90% share of the fast-growing AI chip market. And Nvidia’s dominance seems to be here to stay as its competitors are far behind. Advanced microdevicesfor example, it noted in its most recent earnings conference call that its revenue from AI graphics card sales would reach $4 billion by 2024.

Intelon the other hand, it expects revenue of $500 million from the sale of AI accelerators in the second half of 2024. Nvidia, by comparison, finished its last fiscal year 2024 (which ended in January this year) with data center revenue of $47.5 billion. , which was more than triple the revenue of the previous year.

In short, Nvidia is simply running away from the data center chip market, a trend that is expected to continue thanks to the company’s strong 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 inference 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-gen offering help the company maintain its dominant position in this space. The company’s revenue from AI chip sales is expected to multiply at an astonishing rate in the coming years.

It’s no surprise that Nvidia’s revenue forecasts for the next three fiscal years have taken a big hit lately.

NVDA revenue estimates for the current fiscal year data by 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 2.7x 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 35% jump from current levels.

Nvidia now trades at 36 times sales. 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 command a premium valuation at that point thanks to its dominant position in the AI ​​chip market, which is expected to grow by more than 36% annually through the end of the decade.

The case for Super Micro Computer

Like Nvidia, Super Micro Computer is also a player in the AI ​​chip market. However, instead of designing chips, Super Micro makes AI server products on which graphics cards of the likes of Nvidia mount.

Like Nvidia, Super Micro is a key player in the AI ​​server market. The company makes 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 the sale of AI server products, Super Micro’s revenue from the AI ​​server market should ideally be $6 billion.

The AI ​​server market was worth about $12 billion last year, indicating that Super Micro may be controlling half of that market. Looking ahead, analysts expect the global AI server market to reach $50 billion in annual revenue by 2029, with a CAGR of 26%. Super Micro, however, is growing at a much faster rate than the AI ​​server market.

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

Therefore, Super Micro looks set to gain a larger share of the AI ​​server market. This explains why analysts have substantially raised their growth expectations for Super Micro, as can be seen in the chart below.

SMCI revenue estimates for current fiscal year data by YCharts

The chart above indicates that Super Micro is on track to nearly double its revenue in the next two years. Assuming the company achieves $27 billion in revenue after a couple of years and maintains its current price-to-sales ratio of 3.8 at that point, its market cap could rise to $103 billion. This would represent a 124% increase from current levels.

More importantly, Super Micro’s sales multiple is much lower than Nvidia’s, and Super Micro’s stock is also trading at a discount to the US tech industry average sales multiple of 6.8. So if the market decides to reward Super Micro with a higher multiple, it could deliver much stronger earnings.

The verdict

Signs are that Super Micro Computer stock may offer more upside than Nvidia. Also, Super Micro is much cheaper than Nvidia, as both companies’ sales multiples indicate. Also, analysts expect Super Micro’s earnings to grow at a much faster rate than Nvidia’s.

The AI ​​server maker’s bottom line is expected to grow at an annual rate of 62% over the next five years, beating the 35% annual growth Nvidia is expected to deliver over the same period. Thus, investors looking to buy one of these two AI stocks could consider buying Super Micro given its attractive valuation and the exceptional growth it has been experiencing.