Nvidia (NVDA 6.18%) stands out as a powerhouse stock of 2023 so far. The chipmaker's shares have skyrocketed close to 190% -- and that's after a pullback in recent weeks.
But is Nvidia the best large-cap stock of the year? Nope. It only claims the No. 3 spot. These two artificial intelligence (AI) stocks are handily beating it.
1. AppLovin
AppLovin (APP 6.66%) sells software that helps mobile app developers market and monetize their apps. It also has its own portfolio of over 350 mobile apps that have grown through acquisitions and partnerships.
The company's market cap hovered around $4 billion at the beginning of 2023, far short of the large-cap threshold of $10 billion. However, after skyrocketing 270% higher, AppLovin is definitely a large-cap stock now.
What fueled such staggering gains? In February, AppLovin impressed investors with its first-quarter outlook. Three months later, the company performed even better than its guidance. And it blew past expectations, yet again, with its second-quarter results announced in August.
The big star for AppLovin these days is AXON 2.0, an AI-based advertising engine. AXON 2.0 powers the company's AppDiscovery platform that helps customers manage mobile and connected-TV (CTV) advertising campaigns.
2. Super Micro Computer
Super Micro Computer (SMCI 8.89%) provides high-performance server and storage solutions. The company's Building Blocks Solutions are sort of the server equivalent of Lego blocks, enabling rapid deployment of customized server systems.
Like AppLovin, Super Micro Computer didn't qualify as a large-cap stock early in the year. But after more than tripling over the last nine months, the company's market cap now tops $13 billion.
Super Micro Computer and Nvidia have two key things in common. First, the two companies are partners. Super Micro's systems use Nvidia's graphics processing units. Second, the same underlying catalyst -- the surging interest in generative AI -- has helped both stocks.
Until a few weeks ago, Super Micro Computer stock was beating Nvidia by an even wider margin. However, the company provided soft guidance for its fiscal 2024 first quarter, which ends on Sept. 30, 2023. This spooked investors and caused the stock to fall from its record high.
Are they buys?
Despite its jaw-dropping year-to-date performance, AppLovin stock only trades at a forward earnings multiple of 12.4x. Its price-to-earnings-to-growth (PEG) ratio is a super-low 0.62x.
AppLovin CEO Adam Foroughi said in the company's latest quarterly update in August that AXON 2.0 is "cutting-edge and as potent as there is in performance market as far as the technology goes." He added that CTV "could pose a very big growth channel." I think he's right.
Super Micro Computer's valuation appears to be attractive, too. The stock currently trades at roughly 15x projected earnings.
I'm not too concerned about the company's fiscal 2024 Q1 guidance. The main problem is the limited supply of Nvidia's chips, but that should only be a temporary issue. It was also encouraging to see one of Super Micro's board members personally invest more than $1 million to buy more shares in the wake of the sell-off.
Wall Street's consensus 12-month price target for AppLovin reflects an upside potential of around 11%. The average price target for Super Micro Computers is nearly 36% higher than the current share price. Interestingly, though, only two of the six analysts surveyed by Refinitiv in September recommend buying the stock.
My view is that both AppLovin and Super Micro Computers could keep up their winning ways over the long term. They look like solid picks for growth investors seeking AI stocks that aren't priced at absurdly high levels.
