Super Micro Computer (SMCI +3.18%) and IonQ (IONQ +5.43%) both saw their stocks soar amid the buying frenzy in artificial intelligence (AI) stocks over the past year. Shares of Super Micro Computer, more commonly known as Supermicro, surged 211% this year as its sales of dedicated AI servers skyrocketed. IonQ's stock rallied 236% as it dazzled investors with the rapid expansion of its quantum computing systems -- which can process AI tasks much faster than traditional computers.
But should investors buy either of these high-flying AI stocks today? Let's review their business models, growth rates, and valuations to decide.
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Supermicro is firing on all cylinders
Supermicro sells high-end servers to more than 1,000 customers in over 100 countries. It's the world's seventh-largest server company with a market share of about 5%, according to History-Computer, and its largest competitors are Dell (DELL +2.95%) and Hewlett Packard Enterprise (HPE +2.58%).
NASDAQ: SMCI
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Supermicro didn't initially attract much attention when it went public in 2007 since it seemed like an underdog in a commoditized market. It also had a shaky reputation. It was fined in 2006 for violating U.S. trade sanctions with indirect exports to Iran, while Chinese spy chips were allegedly found in some of its motherboards in 2019.
But despite those challenges, Supermicro carved out a niche in dedicated AI servers through a close partnership with Nvidia (NVDA +0.87%), the world's leading producer of high-end data center GPUs for processing complex AI tasks. That close relationship enabled it to install Nvidia's latest GPUs before its larger competitors in the pre-built server market.
As a result, the rise of generative AI platforms over the past two years -- which sparked a buying frenzy in high-end GPUs and pre-built AI servers -- lit a fire under Supermicro's business. Its revenue soared 46% in fiscal 2022 and 37% in fiscal 2023 (which ended this June). Its adjusted net income rose 129% in fiscal 2022 and 116% in fiscal 2023. It also grew its share of the dedicated AI server market against HP, Dell, and its other larger competitors.
Supermicro expects its revenue to rise between 40% and 54% to between $10 and $11 billion in fiscal 2024, even as it grapples with a constrained supply of Nvidia's GPUs, while analysts expect its adjusted EPS to grow 44%. Those are superb growth rates for a stock that trades at 15 times forward earnings and 1.2 times next year's sales. Analysts expect its revenue to rise at a compound annual growth rate (CAGR) of 22% from fiscal 2023 through fiscal 2026.
IonQ has a lot of growth potential
Traditional computers use binary bits of zeros and ones to process data. Quantum computers use "qubits," which simultaneously store both states to process data at much faster rates. But there's a downside to generating all that speed: Quantum computers still aren't as accurate as traditional computers, and they're bigger and pricier.
NYSE: IONQ
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IonQ believes it can address those two issues with its "trapped ion" architecture, which enables it to produce qubit processing units (QPUs) that are only two inches wide. By comparison, most current-generation QPU systems are several feet wide. IonQ also provides its quantum computing power as a cloud-based service through Amazon's Braket, Microsoft's Azure, and Alphabet's Google Cloud.
Quantum computing companies measure their processing power in algorithmic qubits (AQs). During its pre-merger presentation, IonQ claimed it could increase its processing power from AQ 22 in 2021 to AQ 29 in 2023. However, it actually achieved AQ 29 seven months ahead of schedule -- and it's now set on reaching its next milestones of AQ 35 in 2024 and AQ 64 in 2025. Beyond those near-term goals, it expects to exponentially scale its business and reach AQ 1,024 by 2028.
IonQ's revenue rose from $3 million in 2021 to $11 million in 2022 as it secured more contracts and increased its computing power. It expects its revenue to rise another 70% to 73% to about $19 million in 2023. Those growth rates are impressive, but they're still well below its pre-merger goal of generating $34 million in revenue in 2023.
IonQ is still deeply unprofitable, and its stock might seem overvalued at 115 times this year's sales. But analysts still expect its revenue to grow at a compound annual growth rate (CAGR) of 115% from 2023 to 2025 -- so it might deserve that premium valuation if you believe it can successfully expand its quantum computing platform.
The better buy: Supermicro
Both of these stocks are promising plays on the long-term growth of the AI market. But if I had to choose one over the other right now, I'd pick Supermicro because it's already scaled up its business, it's growing rapidly, it's firmly profitable, and its stock is cheaper based on the metrics I look at most closely. IonQ could still have plenty of room to run, but its high valuation, lack of profits, and unproven track record make it a less appealing stock to buy as long as interest rates stay elevated.
