AI Stocks to Watch: Super Micro Computer and AMD
In the past year, many stocks associated with artificial intelligence have seen considerable price fluctuations. Some have reached all-time highs and continued to rise, while others have pulled back as investors adjusted their expectations for the future.
While not all AI stocks will experience dramatic increases, some are well-positioned for notable growth. Investors looking for potential opportunities may want to consider stocks such as Super Micro Computer (NASDAQ: SMCI) and Advanced Micro Devices (NASDAQ: AMD).
1. Super Micro Computer
Supermicro, despite being down over 50% from its peak in March, has seen an impressive increase of more than 3,000% over the past five years.
This technology hardware manufacturer has been operating since 1993 and began trading publicly in 2007. For much of its history, it remained relatively unknown outside the tech industry.
As computing workloads increasingly shifted to the cloud, the popularity of its server technology grew. This trend accelerated during the COVID-19 pandemic, which contributed to a rise in its stock value. Notably, Supermicro was one of the few tech stocks that thrived during the bear market of 2022.
The most significant surge began in the spring of 2023 when investors realized that Nvidia's AI chips powered Supermicro's servers. According to Allied Market Research, the AI chip market is expected to grow at a compound annual growth rate of 38% through 2032. This anticipated growth has acted as a catalyst for Supermicro, propelling its stock from just $82 per share at the start of 2023 to a peak of $1,229 per share in less than 15 months.
While the stock has pulled back since then, the strong demand for its servers has positively impacted its financial performance. In the first half of 2024, the company reported $15 billion in revenue, marking a remarkable 110% increase compared to the same period in 2023. Although rising sales costs have affected profitability, the $1.2 billion in earnings reported in the first half of 2024 still represents an 89% increase from the previous year.
This pullback might present a great opportunity for new investors to acquire shares. Currently, Supermicro stock is available at 31 times earnings, and with its substantial growth, its price/earnings-to-growth (PEG) ratio stands at just 0.4. This suggests that the market has not fully accounted for the company's growth potential.
Given the ongoing demand for its servers, Supermicro's growth trajectory seems unlikely to slow down anytime soon. With its currently low PEG ratio, now could be an excellent time to consider adding shares to your portfolio.
2. Advanced Micro Devices (AMD)
AMD, similar to many other chip stocks, has been overshadowed by Nvidia due to that company's significant lead in the AI chip market. While it may be a while before any competitor overtakes Nvidia, AMD is arguably the most likely candidate to become the second-largest player in this space.
Late last year, AMD launched its MI300 series of AI chips. In response to Nvidia's competitive releases, AMD has been working to enhance its capabilities. The company recently completed its acquisition of Silo AI, the largest AI lab in Europe, and signed a deal to purchase ZT Systems, an AI infrastructure provider. These strategic moves should bolster AMD's competitiveness in the data center AI market and help it close the technical gap with Nvidia.
In the first half of 2024, the data center segment, which includes its AI chips, saw revenue grow by 98% year over year, compared to just 6% growth for AMD as a whole. This segment generated $5.2 billion, accounting for 46% of AMD's total revenue of $11.3 billion during the same period.
This shift marks a significant change for AMD. In the first half of 2023, the data center segment contributed only 24% of AMD's revenue, a smaller share compared to its gaming and embedded segments. Now, as gaming and embedded sales have sharply declined, the data center segment has taken on a more dominant role within the company.
If Nvidia's past performance is any indication, this trend may continue for AMD. In the first quarter of Nvidia's fiscal 2025, the data center segment delivered 87% of the company's revenue, a dramatic shift from two years prior when data center sales barely surpassed gaming revenue. This trend suggests that AI chips could soon become AMD's primary focus.
Currently, AMD's P/E ratio stands at 189, but this figure may be misleading as the company has only recently returned to profitability. Its price-to-sales (P/S) ratio of 11 is significantly lower than Nvidia's 40 sales multiple. If AMD's rapidly growing data center revenue continues to expand as a portion of its overall revenue, it could lead to accelerated growth that attracts more investors to AMD stock.
Should You Invest in Super Micro Computer Right Now?
Before making any investment in Super Micro Computer, it's essential to evaluate its performance and market outlook. The company has garnered attention due to its impressive revenue growth and strategic advancements that position it favorably within the expanding AI sector.
Frequently Asked Questions
What factors contribute to Super Micro Computer's stock growth?
Super Micro Computer's stock growth is significantly influenced by its position in the AI market, particularly its association with Nvidia's AI chips and the increasing demand for cloud computing solutions.
How has AMD responded to competition with Nvidia?
AMD is enhancing its competitive edge by acquiring AI labs and infrastructure providers, which strengthens its position in the data center AI market and helps it better contend with Nvidia.
Is now a good time to invest in Super Micro Computer?
With its current low PEG ratio and high demand for servers, many analysts believe it may be a favorable time to invest in Super Micro Computer.
What is the projected growth rate for the AI chip market?
Allied Market Research projects a compound annual growth rate of 38% for the AI chip market through 2032, which could benefit companies like Super Micro Computer and AMD.
How vital is the data center segment for AMD's future?
The data center segment is becoming increasingly dominant for AMD, representing 46% of its overall revenue, marking a crucial shift in its business strategy moving forward.
