Nvidia (NVDA 3.58%) and Super Micro Computer (SMCI 15.81%) have been two of the top stocks to own during the artificial intelligence (AI) boom. Since the start of 2023, shares of Supermicro (as it is commonly known) have vaulted 709% while Nvidia stock has jumped 374%. Up until a recent surge by Supermicro, the two stocks have followed a similar path.
Both Nvidia and Super Micro Computer have been great stocks to own so far, but it's worth asking which is the better one to own today. To answer that question, we asked two of our contributors to pitch their pick of the two. First, we hear the Nvidia case.
Nvidia is an AI leader at an affordable valuation
Parkev Tatevosian (Nvidia): Arguably, no company benefits as much from the rising effectiveness of artificial intelligence as Nvidia. Revenue and profits are soaring for the maker of graphic processing units (GPUs). Unsurprisingly, the stock price has followed suit, but even though the market price has increased, Nvidia's valuation is still attractive for investors looking to capitalize on the AI wave.
Indeed, Nvidia's revenue jumped by 102% and 206% in its two most recent quarters from the respective quarters of the prior year. That can be primarily attributed to increased demand from enterprises and institutions looking to implement AI technology in their processes.
More importantly, the increase in sales has fueled a similar increase in profit for Nvidia. Operating income exploded to $6.8 billion and $10.4 billion in the two most recent quarters. Of course, a profit surge of this magnitude will attract competitors, but Nvidia is arguably at least one, perhaps two, steps ahead of its rivals.
NVDA PE Ratio (Forward 1y) data by YCharts
To make the investment case more compelling, Nvidia is trading at a forward price-to-earnings ratio of 27, a relatively low price for a business with such excellent prospects. Investors can do worse than adding Nvidia stocks to their buying list.
The "next Nvidia" could be a better choice
Jeremy Bowman (Super Micro Computer): In many ways, Super Micro Computer is shaping up to be the next Nvidia. The company makes advanced servers and storage equipment that are well-suited to handle the kind of intense workloads that AI applications like ChatGPT demand. Supermicro works closely with Nvidia, and its hardware is built using Nvidia chips.
The relationship between the two stocks was reinforced again on Monday, when both stocks rose as Goldman Sachs raised its price target on Nvidia. While there wasn't a comment on Supermicro specifically, the analyst did note signs that AI server demand was strong and GPU supply was improving, which is good news for Supermicro.
Nvidia stock rose 5% on the news, but Supermicro jumped 14%. Those comments also indicate that Supermicro's business could be starting to experience the kind of breakout Nvidia saw last year. Improving GPU supply could also mean that Supermicro will beat its guidance for the year, as that was based in part on supply chain constraints.
Finally, Supermicro also has the advantage of being significantly smaller than Nvidia, meaning it's easier for the stock to be a multi-bagger from here. Nvidia currently trades at a market cap of $1.7 trillion, compared with $37 billion for Supermicro. It's not unreasonable for a $37 billion stock to double, but for Nvidia to double would mean it would become the most valuable company in the world. That's not an impossible task, but it's not as easy as going from $37 billion to $74 billion in size.
Both stocks look like great choices in the AI revolution, but Super Micro Computer has more long-term upside potential than Nvidia and looks like a good bet to surge later in the year as GPU supply loosens up and it can fulfill more demand.
