While Nvidia's (NASDAQ: NVDA) performance has been impressive to start the year, it hasn't outperformed one stock in the S&P 500, Super Micro Computer (SMCI -2.90%). So far in 2024, Supermicro is up around 217%, while Nvidia trails it with a 172% rise.
Regardless, you're incredibly happy if you've owned either of these stocks. But could Supermicro continue its outperformance to cap off an incredible rise in 2024?
Super Micro Computer is another beneficiary of the artificial intelligence arms race
While more people are likely familiar with Nvidia than Supermicro, the two companies are clearly benefiting from the same trends. Nvidia's rise has been tied to its best-in-class graphics processing units (GPUs), which are used to train artificial intelligence (AI) models. When companies buy Nvidia GPUs, they don't buy just one or two; they buy hundreds or thousands and connect them together to create a powerful server.
But you can't just haphazardly throw them into a room, connect them, and expect peak performance. To maximize performance, they must be properly networked, cooled, and pooled together. That's where Super Micro Computer comes into the picture.
Supermicro allows its clients to customize their servers to workload type and size. So, whether you want to create a server setup to run massive AI workloads or a smaller computer tasked with engineering simulations or drug discovery, Supermicro has you covered.
The investment thesis behind the stock is fairly simple: GPUs are in high demand, therefore so are the other parts that go into creating these high-powered computers. So far, in 2024, that thesis has been absolutely correct.
Supermicro has seen strong demand for its products and grew its revenue by 200% year over year in the third quarter of fiscal 2024 (ending March 31). It is also predicted to have strong growth at the end of the year, with Q4 revenue expected to grow between 133% and 152%. Investors will get guidance for fiscal year 2025 sometime in early August, but Wall Street analysts already have some estimates available. For fiscal year 2025, analysts expect around 61% growth, indicating the strength Supermicro is seeing now should continue.
But will that be enough to outlast Nvidia?
The stock trades at a discount to Nvidia
Nvidia has defied all odds in its run-up, as it continues to grow at an unbelievable speed (much faster than Super Micro Computer), post record-breaking margins, and attain an incredibly high valuation.
Supermicro isn't in the same class as Nvidia, as it has a relatively slim profit margin (9% versus Nvidia's 53%) due to the highly competitive nature of its business. While Nvidia has game-changing technology that sets it apart from competitors, Supermicro's advantage is its customizability.
That's not a great competitive advantage, so its margins are lower and will likely never improve. However, that doesn't mean it can't be a solid stock.
With the stock trading at 26 times forward earnings, it's likely fairly valued for its growth and business prowess. As a result, there isn't as much risk valuation as Nvidia, which tips the scales at a pricey 47 times forward earnings.
SMCI PE Ratio data by YCharts
Because Super Micro Computer is slated to have a strong end to the year and trades at a reasonable price tag, I think it can outlast Nvidia to claim the accolade of 2024's top-performing stock in the S&P 500.
