NVIDIA (NASDAQ: NVDA) It’s one of the best stocks to own. Artificial Intelligence (AI) So far, the company’s revenue has tripled year-over-year in the most recent quarter, and its stock price has risen 149% in the first half of 2024.
With its stock price soaring, Nvidia’s valuation looks expensive: The company started the year trading at less than 30 times expected earnings, but now trades at 45 times this year’s consensus earnings. Nvidia could see enough growth to boost its stock price, but it’s also possible that near-term demand is already priced into the stock, limiting any upside through the end of the year.
The good news is that Nvidia isn’t the only AI stock outperforming the market. While Nvidia has benefited from the shortage of AI chips, improving supply could lead to even greater demand for AI servers, potentially driving superior near-term returns as shares of these companies trade at more reasonable valuations.
Here are two AI server stocks that could outperform Nvidia over the rest of the year.
1. Supermicrocomputer
Super Microcomputer (NASDAQ:SMCI) The company’s stock price has outperformed Nvidia in 2024, rising 188%. The company sells rack-mounted systems for data centers. With exposure to the broad demand for AI chips, Supermicro (aka Supermicro) is a strong alternative to Nvidia.
Supermicro is looking to expand its 5G connectivity and Edge ComputingBut demand for plug-and-play rack systems with Nvidia’s data center chips is growing. Advanced Micro Devices These are now key drivers of the company’s growth: Revenues last quarter surged 200% year over year, mirroring Nvidia’s growth.
Selling server systems is a competitive market, but it’s good to see Supermicro growing at a faster pace than the industry. The company maintains close relationships with suppliers such as Nvidia, helping it deliver innovative solutions ahead of competitors. The company is now pushing for the adoption of direct liquid cooling solutions it has developed over the years to better manage the heat generated by AI computing systems.
If the company continues to outperform its server peers, its stock could see big gains: Wall Street analysts expect Supermicro’s earnings per share to grow 46% annually over the next few years, compared with Nvidia’s expected 33% growth.
Additionally, Supermicro stock is more valuable than Nvidia, which currently trades at a forward price-to-earnings ratio of 35 compared to Nvidia’s forward price-to-earnings ratio of 45. Investors can get greater earnings growth at a lower price with Supermicro stock, which is a recipe for superior returns.
2. Dell Technologies
Dell Technologies (NYSE: DELL) The company’s shares are up 80% so far this year, and accelerating demand for its AI servers could see its stock outperform Nvidia for the rest of the year.
Dell gets the majority of its revenue from client solutions, which includes PC sales, but infrastructure solutions is its fastest growing business, with revenue up 22% year over year last quarter. Shipments of AI servers have more than doubled compared to the same period last year. Over the past year, revenue from AI servers has surged from zero to $1.7 billion, and they’re just getting started.
While AI server sales are putting pressure on Dell’s gross margins, the robust revenue growth expected from the AI server business could support strong profit growth over the next few years, helping to boost the stock price.
The company’s AI server backlog grew about 31% last quarter to $3.8 billion. Teslaaccording to Evercore ISI analyst Amit Daryanani: Dell appears to be in a strong competitive position. The analyst believes Dell has made a bigger dent in server business with electric vehicle makers than Supermicro.
Wall Street analysts are forecasting 12% annual earnings growth over the next few years, a forecast that could increase even more if Dell’s PC business recovers. The company’s forward P/E of 18 is attractive given the potential for accelerating earnings growth, which could lead to superior returns.
Should I invest $1,000 in Super Micro Computer right now?
Before buying Super Micro Computer shares, consider the following:
of Motley Fool Stock Advisor The analyst team Top 10 Stocks Here are the stocks investors should buy right now… Supermicro Computer wasn’t one of them. The 10 stocks selected have the potential to generate huge profits over the next few years.
Things to consider NVIDIA This list was created on April 15, 2005…If you invested $1,000 at the time of recommendation, That works out to $759,759.!*
Stock Advisor With portfolio construction guidance, regular updates from our analysts, and two new stock picks every month, we provide investors with an easy-to-follow blueprint for success. Stock Advisor The service is More than 4 times S&P 500 Recovery Since 2002*.
*Stock Advisor returns as of June 24, 2024
John Ballard The Motley Fool has invested in and recommends Advanced Micro Devices, NVIDIA, and Tesla. The Motley Fool has invested in and recommends Advanced Micro Devices, NVIDIA, and Tesla. Disclosure Policy.
Nvidia shares are up 149% this year, and here are two stocks that could outperform that over the remainder of 2024. Originally published on The Motley Fool