Nvidia (NASDAQ: NVDA) has been the poster child of artificial intelligence (AI) investing in 2023. The stock has risen over 230% so far in 2023, making it one of the best-performing stocks in the entire market. However, that performance comes at a price, as the stock now has a premium valuation. Still, many investors might be looking to capitalize on the hardware segment of the AI investment space.
That's where Super Micro Computer (SMCI -3.05%) (often called Supermicro) comes in. In fact, the stock is actually doing better than Nvidia in 2023 (it's up about 265%), yet it doesn't carry the same premium valuation. So, how do these two interact? Let's find out.
Super Micro Computer is an important partner for Nvidia
The reason for Nvidia's success in 2023 is its best-in-class GPUs (graphics processing units) that are used to crunch heavy workloads needed to develop AI models. But just one or two GPUs won't do; instead, anyone building a supercomputer or a data center connects hundreds or thousands of these GPUs together to increase their computing power.
But often, many companies don't have the experience necessary to piece together the components to create the server. That's where Supermicro comes in. Supermicro's highly configurable servers allow customers to specify what they need, and then Supermicro builds it for them. With servers specializing in engineering simulation, drug discovery, generative AI training, or game development, customers can find a product that fits their needs.
Furthermore, Supermicro closely collaborates with Nvidia to get the most out of Nvidia's GPUs, which further cements Supermicro as a top option in the space over competition from Hewlett Packard and Dell.
With the AI arms race just beginning, Super Micro Computer has a solid investment story. But how are its finances?
Supermicro and Nvidia have completely different finances
While Supermicro and Nvidia may be partners, their finances are nothing alike. In each company's most recent quarter, Supermicro's revenue rose 14% compared to Nvidia's 206% rise. The profit picture is also completely different as well.
SMCI Gross Profit Margin (Quarterly) data by YCharts.
So, although the two work together in a similar industry, meeting the same needs, Supermicro is not Nvidia.
But that doesn't mean it can't be a great investment.
For the second quarter of fiscal year 2024, management is projecting 50% to 61% year-over-year growth -- a significant acceleration from its previous levels. Although Supermicro's trailing-12-month revenue is about $7.4 billion, its long-term target is to reach $20 billion in annual sales. That's a healthy amount of growth for Supremicro and would make it a winning investment if the company can accomplish it.
One benefit of Supermicro's stock is its cheap price tag. While Nvidia's premium is sky-high, Supermicro only trades at 26 times earnings and 16 times forward earnings. That's not a bad price tag, considering that the S&P 500 trades for about 19 times forward earnings.
Finally, when looking at how analysts feel about the stock, the average of 10 price targets is $397, or about a 35% upside for the stock in 12 months if their projections come true. That's an excellent return for a single year, although it pales compared to 2023's gain.
So, is Supermicro a better investment than Nvidia? I'd say yes. Essentially, you get the upside of the AI boom without the premium price tag. As a result, I'd feel more confident investing in Supermicro than I would in Nvidia right now.
