Artificial intelligence (AI) has turned out to be a solid catalyst for many stocks over the past year or so, which explains why shares of Super Micro Computer (NASDAQ: SMCI) and Advanced Micro Devices (NASDAQ: AMD) have shot up 607% and 101%, respectively, in the last 12 months.
However, a closer look at the financial performance of these companies reveals big differences in the impact of AI on their businesses. While one of these companies is witnessing significant revenue and earnings growth thanks to AI, the other one is still trying to establish a strong foothold in this vast market.
Let’s take a closer look at the prospects of these two AI stocks to gauge which one of them is most worth buying right now.
Super Micro Computer: Capitalizing on the AI Boom
Super Micro Computer (commonly known as Supermicro) sells AI server solutions such as rackmounts that are used for deploying AI chips. The company’s customized and modular server solutions are used for mounting AI chips from the likes of Nvidia, Intel, and AMD. As the demand for AI server chips has increased, sales of Supermicro’s offerings have seen an impressive surge. In its fiscal 2024 second quarter that ended on Dec. 31, the company’s revenue rose by 103% year over year to $3.66 billion. Its adjusted earnings jumped from $3.26 per share in the year-ago quarter to $5.59 per share. Management attributed this growth to new customer gains and robust demand from established customers for Supermicro’s optimized AI computer platforms and rack-scale Total IT Solutions.
Supermicro is aggressively investing in capacity expansion to make the most of this opportunity. On its latest earnings conference call, management revealed that its new production “sites will support our annual revenue capacity above $25 billion.” Analysts estimate that its earnings could grow at an annualized rate of 48% for the next five years, suggesting that Super Micro Computer could sustain its impressive share price rally.
AMD: Struggling to Keep Up
While shares of AMD have doubled in the past year, that rise has been driven more by hype. AMD’s fourth-quarter results show that its AI business isn’t going to be as substantial as that of Supermicro. AMD anticipates generating at least $3.5 billion in revenue from sales of AI chips in 2024, significantly less than Supermicro’s expected revenue. The good news is that AMD has significantly raised its AI-related revenue guidance for 2024. The company was earlier anticipating $2 billion in revenue from sales of AI chips this year.
However, AI constitutes a small percentage of AMD’s overall business, and the company faces challenges in key areas. Analysts are expecting its revenue to increase 14% in 2024 to $26 billion, which is significantly slower than Supermicro’s anticipated growth. AMD’s revenue is expected to jump 25% in 2025, still lower than the projected growth of Supermicro.
The Valuation Tells the Tale
Super Micro Computer is growing at a much faster pace than AMD and is trading at a much cheaper price-to-sales multiple. Super Micro Computer is cheaper than AMD as far as their forward valuation multiples are concerned.
The Rise of Super Micro Computer in the AI Stock Market
Super Micro Computer: A Hidden Gem?
Super Micro Computer Inc. is creating a buzz in the AI stock market. In a head-to-head comparison with Advanced Micro Devices (AMD), the former comes out as the superior investment option. Not only is Super Micro Computer more affordable, but it is also riding high on substantial growth, driven by the surging demand for its server solutions.
Investor’s Dilemma: Should You Invest Now?
For those contemplating investing $1,000 in Super Micro Computer, here’s something to ponder. The reputed Motley Fool Stock Advisor analyst team excluded Super Micro Computer from their list of 10 best stocks for investors to buy now, indicating potential for massive returns from the chosen stocks.
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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices and Nvidia. The Motley Fool recommends Gartner, Intel, and Super Micro Computer and recommends the following options: long January 2023 $57.50 calls on Intel, long January 2025 $45 calls on Intel, and short February 2024 $47 calls on Intel. The Motley Fool has a disclosure policy.
