Nvidia (NVDA 1.27%) and Super Micro Computer (SMCI -0.15%) have been top performers on the stock market in 2023, delivering outstanding gains of 210% and 253%, respectively, as of this writing.
These growth stocks have taken off this year thanks to one common catalyst -- artificial intelligence (AI). While Nvidia has turned out to be a pioneer in AI chips thanks to its graphics processing units (GPUs), which are being deployed in servers to train large language models (LLMs), Super Micro is also providing critical infrastructure as it builds the servers in which the computing and storage chips are housed.
The proliferation of AI has supercharged the growth of both companies, but which one of these two hot growth stocks should you consider buying following their eye-popping jumps this year? Let's find out.
How fast are these companies growing?
Both Nvidia and Super Micro have been delivering robust growth in revenue and earnings thanks to AI.
While Nvidia's revenue for the second quarter of fiscal 2024 (for the three months ended July 30) jumped an impressive 101% from the year-ago period to $13.5 billion, Super Micro's revenue increased 33% year over year to $2.2 billion in the fourth quarter of fiscal 2023 (for the three months ended June 30).
Nvidia's guidance for the current quarter points toward an acceleration in its revenue growth. Analysts are forecasting the company's revenue to jump to almost $55 billion in the current fiscal year from $27 billion in the previous one. On the other hand, Super Micro's revenue guidance of $10 billion for fiscal 2024 points toward a 40% increase over last year. However, the company could do better thanks to a record-high backlog that it could take advantage of if the supply chain challenges hampering the component availability of AI server platforms improve.
Nvidia, therefore, is growing at a much faster pace than Super Micro, though it was struggling earlier before AI arrived as a catalyst. Meanwhile, Super Micro was doing well even before the AI boom kicked in.
NVDA Revenue (TTM) data by YCharts
The chart above tells us that Nvidia's growth has switched into a higher gear only in recent months. The company was struggling before that thanks to a glut of graphics cards in the personal computer (PC) market.
Super Micro, on the other hand, has a more consistent growth curve. That's not surprising as the company operates in the server market that has been enjoying healthy growth since 2020 thanks to infrastructure upgrades by enterprises as well as the need for more storage and computing power to support the increasing amount of data that's flowing into data centers.
The good part is that Super Micro is expected to keep growing at a nice pace in the future, but will it be enough to help it outperform Nvidia on the stock market?
Super Micro and Nvidia are set for solid long-term growth
Super Micro has made its mark in the global server market thanks to its modular solutions that are reportedly helping it win more market share. Barclays analyst George Wang estimates that the company has a 7% share of the server market, but it can keep taking share away from bigger players such as Hewlett Packard Enterprise and Dell Technologies.
One of the reasons why that may be the case is because of Super Micro's capacity expansion. Management claims that Super Micro's existing facilities in the U.S. and Taiwan can support at least $15 billion in revenue, which would be a 50% increase over this year's estimated revenue. According to Wang, Super Micro's new facility in Malaysia, which is expected to become operational in the second half of fiscal 2024, could support up to $30 billion in annual revenue.
This facility is coming online at a good time as the demand for AI servers is booming. Foxconn estimates that the size of the AI server market could increase to $150 billion in 2027, which would be a 5x increase over this year's estimated revenue of $30 billion. Assuming all of Super Micro's production capacity is booked, investors are looking at a tremendous jump in the company's top line over the next few years as compared to its fiscal 2023 revenue of $7.1 billion.
Nvidia, on the other hand, isn't expected to be a slouch either as the company is expected to control a whopping 90% of the market for AI chips, according to Citi. With the AI chip market expected to clock 29% annual growth through the end of the decade, Nvidia is sitting on a lucrative secular growth opportunity. This explains why Nvidia's top line is expected to jump 3.5x in the space of just three years to $96 billion in fiscal 2026 from $27 billion in fiscal 2023.
NVDA Revenue Estimates for Current Fiscal Year data by YCharts
The verdict
The discussion above tells us that Super Micro and Nvidia are set to sustain impressive levels of growth in the long run, indicating that both of them could turn out to be solid growth picks. However, there is a major difference in the valuation of these two stocks.
Super Micro's price-to-sales ratio of 2.3 makes it way cheaper than Nvidia, which is trading at 35 times sales. What's more, Super Micro is trading at 25 times trailing earnings and 7 times forward earnings. Nvidia, meanwhile, has a trailing price-to-earnings ratio of 109 and a forward earnings multiple of 55.
Of course, Nvidia's much faster growth justifies its premium valuation compared to Super Micro. However, investors looking for a growth stock at a cheaper valuation may prefer buying Super Micro given how fast its business is growing and its bright prospects that point toward healthy long-term growth.
