Nvidia (NVDA +2.06%) stock may have claimed the mantle as the leader of the artificial intelligence (AI) revolution, but one AI stock has outperformed it. That's Super Micro Computer (SMCI +3.00%), a maker of high-density servers and storage equipment that, like Nvidia, has seen a surge in demand during the AI boom as its products are well-suited to run demanding AI models like ChatGPT.
As you can see from the chart below, Supermicro stock has soared since the start of 2023, beating out Nvidia, even though it has pulled back in recent weeks.
Is Supermicro stock a buy? Below is a look at what the stock has to offer today to answer that question.
Image source: Getty Images.
Where Supermicro stock stands today
It's easy to see why Supermicro's stock has skyrocketed over the last 1 1/2 years. Like Nvidia, the company sells computing infrastructure that's in high demand in the AI boom.
The company's revenue growth has gone parabolic in recent quarters, jumping from just 14% in the fiscal first quarter, which ended in September, to 103% in the December quarter. Next it jumped to 200% in the March quarter -- the fiscal third quarter. Looking ahead, the company expects a revenue surge of $5.1 billion to $5.5 billion in the current quarter, representing 143% year-over-year growth and 38% sequential growth at the midpoint.
Investors shouldn't expect that triple-digit growth rate to last forever, but it's clear that Supermicro is capitalizing on the ramp up in AI infrastructure in a way that competitors like Dell Technologies and HPE aren't yet.
The company has a number of competitive advantages that have driven its skyrocketing growth and separated it from the competition. Supermicro enjoys a long-standing close relationship with Nvidia. Supermicro's CEO Charles Liang and Nvidia's CEO have been collaborating for more than 30 years, and both are immigrants from Taiwan. That relationship helps Supermicro get preferred access to new chips and components for its servers, and the companies have worked together on custom designs.
Supermicro is known for being faster than the competition to release new products and offers more customization options. It also specializes in high-density servers, which deliver more computing power in less space and are therefore valued for AI applications, which demand large amounts of power.
Finally, Supermicro has also developed liquid cooling solutions, which are becoming increasingly necessary to run AI servers, to help it stay ahead of the competition. Liquid cooling can also help data centers save on energy costs. Supermicro said in its recent earnings call that its liquid cooling technology, along with other features, can help customers save 40% in data center energy costs at scale.
NASDAQ: SMCI
Key Data Points
Is Super Micro Computer stock a buy?
Shares of Supermicro are now down roughly 26% from their peak shortly after the company was admitted into the S&P 500. Concerns about a bubble and encroaching competition have spooked some investors, but recent reports from Nvidia and Supermicro show demand for AI hardware is still soaring and outstripping supply, according to Nvidia CEO Jensen Huang.
Given the soaring revenue growth at Supermicro, you might expect the stock to be extremely expensive, but its valuation looks reasonable at a forward price-to-earnings ratio (P/E) under 40. The company hasn't experienced the same margin expansion that Nvidia has, as it's kept its prices down to capitalize on the opportunity to add new customers and build loyalty, but Supermicro's profits are still growing rapidly.
Generative AI still seems to be in the early stages of its development, and hardware needs are likely to grow from here. Considering its valuation and rapid growth, Supermicro looks like a smart stock to buy if you're bullish on the AI boom.
