Generative artificial intelligence (AI) could be one of the most impactful technology megatrends of our lifetimes, with analysts at Bloomberg expecting it to become a $1.3 trillion market as more companies build large language models and other applications.
Advanced Micro Devices (AMD 1.78%) and Super Micro Computer (SMCI 3.84%) can unlock significant revenue potential by developing the hardware and infrastructure other enterprises need to build these demanding platforms. Let's discuss what this could mean for investors.
Advanced Micro Devices
Up by 62% so far this year, AMD's stock has richly rewarded investors -- although not quite as much as its rival Nvidia, which soared 200%. While the computer chip company historically focused on lower-margin central processing units (CPUs), which help run laptops and personal computers, its investments in AI-capable chips, called "accelerators," could help set the stage for impressive long-term gains.
In the consumer graphics market, AMD often takes second place to Nvidia -- offering cheaper and less powerful alternatives to its rival's cutting-edge graphics processing units (GPUs). The company could use a similar strategy to compete in the market for enterprise-level AI training chips, which currently suffers from bottlenecks like low supply and high prices as start-ups rush to build new AI-related platforms.
In June, AMD revealed its M1300X chip designed to train large language models and other AI applications. And it plans to ramp up production in the fourth quarter of this year. While management hasn't disclosed pricing information for the new product, it could seek to capture the more affordable side of the AI chip market to make up for being later to market and potentially having less brand recognizability than Nvidia.
With a forward price-to-earnings multiple of 25.2, AMD's valuation is in line with the market average, meaning investors probably aren't too late to bet on its AI potential.
Super Micro Computer
With shares up by an impressive 263% year to date, Super Micro Computer is one of the few companies that managed to exceed Nvidia's explosive stock price growth in 2023. The technology infrastructure company's rapid expansion and relatively low valuation suggest the party isn't over for long-term investors.
Image source: Getty Images.
Unlike AMD, Supermicro doesn't plan to tackle the AI opportunity by making chips. Instead, it focuses on creating computer servers and other IT infrastructure for data centers and cloud service providers, which are enjoying a surge of demand amid the generative AI boom. Its energy-efficient designs and partnership with AI leader Nvidia (Supermicro has designed several servers around Nvidia's H100 GPU) give it a strong competitive moat against potential competition.
For the fiscal full year of 2023, ended June 30, the company generated $7.12 billion in revenue. Management is guiding for that number to rise to between $9.6 billion and $10.5 billion as the AI-driven demand grows.
Despite rising so much this year, Supermicro stock is still relatively affordable. Shares trade for around 2.3 times trailing-12-month sales, which is slightly lower than the S&P 500 average.
Getting in on the ground floor of a long-term opportunity
While AI-related stocks have surged in recent months, investors are still early to the long-term opportunity if the technology is even a fraction as impactful as analysts expect. Advanced Micro Devices and Super Micro Computer are great ways to bet on AI because of their compelling growth drivers and reasonable valuations.
