Super Micro Computer Outperforms Nvidia: An Unexpected Leader in the AI Revolution
The finance world is abuzz with the AI revolution, and while Nvidia (NASDAQ: NVDA) is often hailed as the star of the show, there’s another player that stole the spotlight in the first half of the year – Super Micro Computer (NASDAQ: SMCI).
Surprisingly, Super Micro Computer outpaced Nvidia in the first half of the year, leading the entire S&P 500 index with an impressive 188% return compared to Nvidia’s 150%, dividends included. At one point in mid-March, Supermicro even soared to a year-to-date gain of 331%.
How did Supermicro achieve this remarkable feat? The answer lies in its AI-related growth, much like Nvidia. As a server-maker, Supermicro capitalized on the increasing demand for AI servers, which account for over 50% of its revenue, mostly housing Nvidia GPUs. Essentially, Supermicro rode a growth wave on Nvidia’s back, selling AI servers with a small markup, indicated by its modest 15.5% gross margins last quarter.
While Nvidia boasted higher revenue growth at 262% in Q2 compared to Super Micro Computer’s 200% growth, the latter’s stock managed to outperform due to starting from a lower valuation. This year, Supermicro traded at around 25 times earnings on Jan. 1, while Nvidia traded at 65 times earnings. As the year progressed, Supermicro’s valuation expanded to around 45 times earnings, an 80% increase, while Nvidia’s P/E ratio saw a mere 8% increase.
Both companies witnessed a surge in future earnings estimates, with Supermicro’s EPS GAAP estimates for the next fiscal year charting impressive growth. Supermicro’s bullish forward guidance and stellar earnings drove this increase, despite a minor stock sell-off after its May 1 earnings report.
The key takeaway from Super Micro Computer’s outperformance is the importance of valuation. While both companies excelled for similar reasons, starting from a lower valuation allowed Supermicro to surpass expectations by a greater degree. As legendary investor Phil Fisher once said, every price move in a stock occurs due to a changed appraisal by the financial community, emphasizing the significance of starting expectations.
In a market dominated by high valuations, understanding the impact of valuation on stock performance is crucial for investors eyeing AI winners. As AI enthusiasm continues to rise, keeping an eye on starting expectations can help navigate the turbulent waters of the finance world.
Is Super Micro Computer a Smart Investment?
Before diving into Super Micro Computer or any other stock, it’s essential to weigh your options. While Super Micro Computer may have outperformed Nvidia in the first half of the year, it didn’t make the cut for the 10 best stocks identified by the Motley Fool Stock Advisor analyst team.
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Invest wisely, consider your options, and explore the 10 recommended stocks by the Motley Fool Stock Advisor team for potentially lucrative returns in the coming years. Remember, every investment decision should align with your financial goals and risk tolerance.
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