The U.S. stock market has been exceptionally strong, with the benchmark S&P 500 index hitting multiple record highs in early 2024. Continued optimism for artificial intelligence (AI) technologies has continued to drive up technology stocks -- a trend that is playing a key role in this stock rally.
Many of these stocks, however, can see some retracement on the back of profit-taking at the end of the earnings season. This pullback can present an attractive opportunity for long-term investors to pick stakes up in high-quality and fundamentally strong AI stocks like Super Micro Computer (SMCI 8.89%) and Broadcom (AVGO 3.84%).
Here's why these stocks are smart buys now.
Super Micro Computer
The demand for AI infrastructure, from data centers and enterprises, has been growing at an unprecedented pace. Mordor Intelligence has predicted the global AI infrastructure market to grow from $68.5 billion in 2024 to $171.2 billion in 2029. A leading provider of high-end server and storage systems, Super Micro Computer is well positioned to capitalize on this huge market opportunity. That is because the company is the third-largest server provider in the world, with an estimated market share of 5%.
Super Micro Computer has positioned itself as a prominent player in delivering advanced AI infrastructure (server, storage, networking, security, and software) to enterprises across industries and verticals. By offering hardware-software integrated platforms, the company makes it easier for customers to deploy and run AI applications.
Not surprisingly, the company's deep learning and large language model (LLM)-optimized systems, based on Nvidia's extremely popular H100 chips, are already in high demand. Super Micro Computer is also gearing up to more than double the size of its AI portfolio by building solutions based on other advanced AI chips such as Nvidia's Grace Hopper Superchip, Advanced Micro Devices' MI300A/ MI300X chips, and Intel's Gaudi 2 and Gaudi 3 chips. Furthermore, Super Micro Computer also offers data center and enterprise liquid cooling technology to help improve the reliability, energy efficiency, and performance of the power-hungry AI platforms.
Super Micro Computer is also leveraging building block architecture for server designing and product/operation automation systems to deliver customized and upgraded operations much faster than the competition. This designing and production flexibility also allows the company to cater to a diverse customer base across sizes and industries.
All these initiatives have translated into robust financial and share price performance for the company. Revenue more than doubled year over year, while net income soared 68% year over year in the most recent quarter (second quarter of fiscal 2024 ending Dec. 31, 2023). The company's share price blasted nearly 1,077% higher in the past year.
Despite the breathtaking rally, considering the huge AI opportunity, Supermicro's shares can continue to grow even higher in the coming months.
Broadcom
Shares of semiconductor player Broadcom rose nearly 4.2% in a single day after the company released its latest earnings results (Q1 2024 ending Feb. 4) on March 7. The stock gained nearly 125% in the past year and almost 26% so far in 2024. Much of this rally can be attributed to the increasing use of the company's advanced networking chips and custom AI accelerators by hyper-scale customers and large enterprises in their AI data centers.
Broadcom came out with stellar performance in the first quarter, with revenue and earnings surpassing consensus estimates. The company is expecting to finish fiscal 2024 (ending Oct. 31) with revenue of $50 billion, a year-over-year jump of 40%. With AI networking chips being increasingly used to move data and communicate across the AI infrastructure, the end market for Broadcom will continue to grow in the coming years. Not surprisingly, the company has increased its year-over-year growth estimate for networking revenue from 30% to 35% for fiscal 2024.
Broadcom is also making rapid progress in upselling the VMware Cloud Foundation (VCF) software stack to existing customers already using its vSphere virtualization tools. VCF integrates computing, storage, and networking and provides an on-premises self-service cloud platform that can act as an alternative to the public cloud.
Since VCF allows enterprises to maintain privacy and full control of their data for running AI workloads, it is expected to see robust demand in the coming years. Broadcom has projected software revenue to reach $20 billion in fiscal 2024.
Broadcom accounts for a 4.8% share of the global semiconductor market. However, considering its prowess in advanced networking chips -- an essential component of the data center AI infrastructure -- the company's shares seem to be a smart buy even at the current elevated price levels.
