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With its shares up 245% year to date, Super Micro Computer (SMCI -2.73%) is one of the few tech stocks that has outperformed Nvidia (NASDAQ: NVDA) (up 211%) in 2023. But despite its big rally, the hardware company still trades at a sharp discount to its larger rival, leaving more room for continued upside as it benefits from a surge in artificial intelligence-related (AI-related) demand. Let’s dig deeper to find out why shares are a buy.
What is Super Micro Computer?
Founded in 1993, Super Micro is a California-based hardware company specializing in energy-efficient computer servers and storage systems for enterprise clients. On the surface, it has a lot of similarities to Nvidia. Both companies started in Silicon Valley in the same year and stand to benefit from the increasing adoption of generative AI, which often relies on the data center infrastructure they provide.
Nvidia’s graphics processing units (GPUs), like the H100 or A100, are ideal for AI training because they excel at performing multiple tasks simultaneously. However, Super Micro’s energy-efficient servers excel at handling these demanding AI workloads as cheaply as possible. More importantly, the company partners with Nvidia to use its GPUs to build what it calls the “broadest selection of NVIDIA-Certified systems” for AI infrastructure, including products based on Nvidia’s new H100 chip. So far, the new business opportunity is boosting operational results.
Earnings look encouraging
Super Micro’s fiscal fourth-quarter net sales jumped by 33% year over year to $2.18 billion on rising demand for equipment to handle generative AI applications and other advanced workloads. Analysts at Bloomberg expect this technology to add $1.5 trillion to the global economy by 2032, representing a significant long-term opportunity for Super Micro, even if it captures just a fraction of the industry’s growth.
That said, Super Micro isn’t the only game in town for U.S.-based computer server providers. Dell Technologies and Hewlett-Packard Enterprise operate in a similar industry.
However, CEO Charles Liang is confident that his company can differentiate itself from the competition through its engineering prowess and ability to bring the latest systems to market faster than others. Part of this speed could have much to do with Super Micro’s presence in the tech hub of Silicon Valley, where it operates a state-of-the-art production facility.
For the full fiscal year 2023, Super Micro generated $7.12 billion — a number management expects to rise to between $9.5 billion and $10.5 billion in 2024 as the positive AI momentum continues.
The valuation is still reasonable
While Super Micro and Nvidia have many similarities, they also have differences, one of which is valuation. Despite its rocket-ship rally, Super Micro has a price-to-earnings (P/E) multiple of just 25. That’s slightly higher than the S&P 500 average and dramatically lower than Nvidia, which trades for a whopping 109 times its trailing-12-month sales. The stock could make a good pick for investors who want exposure to the fast-growing AI infrastructure opportunity at a reasonable price.
Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool recommends Super Micro Computer. The Motley Fool has a disclosure policy.
