Server systems builder Super Micro Computer (SMCI 0.50%) was a market darling a year ago. Is it time to turn away from this disgraced industry titan and seek more reliable investment avenues in the artificial intelligence (AI) market?
Why I'm not jumping on the Super Micro Computer bandwagon in 2025
Supermicro's stock had gained 2,760% in the two years leading up to March 13, 2024. Many hyperscale data centers were loading up on the company's hardware to drive their AI operations.
But that turned out to be the peak of Supermicro's AI surge. Several financial filings were delayed, raising questions about the company's financial reporting quality. A few months later, the company's auditors resigned, citing unreliable data from Supermicro's management and audit committee. The stock fell as much as 84.8% from its March highs.
Supermicro stock is up more than 125% from November's low point, and the company has addressed many of its alleged shortcomings. The belated reports have been filed, and a new auditor was hired in a hurry. But the current auditing firm is a slight step down from global superstars Ernst & Young, and the delayed filings might still need adjustments. For long-term investors who care about reliable management teams and dependable financial reports, the company lost a lot of credibility last year. It will take time to rebuild it.
Luckily, there are many other ways to tap into the AI opportunity -- with world-class management teams and trustworthy reports. Read on to see why I prefer investing in Alphabet (GOOG 0.58%) (GOOGL 0.42%), IBM (IBM 0.56%), and Nvidia (NVDA 1.56%) right now. Before I start, let me just note that all four rely on one of the Big 4 auditor giants -- Ernst & Young for Alphabet and Pricewaterhousecoopers for IBM and Nvidia.
NASDAQ: NVDA
Key Data Points
Nvidia isn't too expensive anymore
I argued that Nvidia's stock price was too high for most of 2024. I even sold some of my shares in January, locking in a sweet 775% gain in less than three years.
Well, the stock price is down 14% from that lofty perch, and it's starting to look affordable again. The rising tide of rival processor designers hasn't undermined Nvidia's leadership in the lucrative market for AI accelerators, and maybe they never will.
Meanwhile, the company scores high in every review of its leadership quality. Soaring stock prices surely play a part in reviews based on employee feedback, but Nvidia's top scores have a long history. For example, Glassdoor called it the best place to work in 2022, citing data collected before OpenAI launched ChatGPT.
NASDAQ: GOOGL
Key Data Points
Alphabet's recipe for lasting success
Alphabet's Google division is another perennial name on Glassdoor's "best places to work" lists. Employees love the generous compensation and innovative company culture. And, of course, Alphabet is a leading provider of AI computing platforms and services.
My Alphabet position started at a split-adjusted $15.03 per share in 2010. Apart from converting my vote-less Class C shares to vote-enabled Class A stubs in 2014, I haven't sold a share and am not likely to do it anytime soon. My original position has gained 992% so far, and the stock looks poised to continue growing in the long run.
Alphabet is quite literally designed for long-term resiliency, bolstering the core operations of online search and advertising with a plethora of loosely related products and services. The next generation might know Alphabet for its self-driving Waymo taxis or maybe as the biggest name in quantum computing. Either way, Alphabet will roll with the punches and lead the technology sector into whatever era is coming up next.
And don't forget that the stock looks very cheap today. Alphabet shares are changing hands at 20.5 times trailing earnings, a valuation ratio that would look modest for a mature, low-growth consumer goods business. Alphabet's sales have increased at a compound annual growth rate (CAGR) of 17.3% over the last five years, so it surely deserves a higher price-to-earnings (P/E) ratio.
NYSE: IBM
Key Data Points
IBM's business-first approach to AI is paying dividends
Last but not least, IBM tailors its AI product to business-class clients. Its data analytics and large language models (LLMs) come with data safety guarantees and auditable tracking features not found in other solutions. It took a while to clear IBM's WatsonX platform for mission-critical workloads, but Big Blue is making loyal long-term customers with every winning contract.
So, IBM's stock has doubled in the last year, as the investor population is starting to catch on to its unheralded AI expertise. As for management quality, IBM is a textbook example of long-term planning and customer focus.
IBM used to be my favorite low-price investment in the AI sector. Alphabet is a bit more affordable after Big Blue's recent gains, but the stock is still a great long-term investment.
