Nvidia (NASDAQ:NVDA) has been one of the best stocks to own in the artificial intelligence (AI) race so far. The company’s revenue has tripled year-over-year in recent quarters, sending the stock up 149% in the first half of 2024.
With these high prices, Nvidia’s valuation seems exaggerated. The stock’s forward price-to-earnings ratio was below 30 at the start of the year, but it now trades at a higher price, or 45 times the consensus estimate for this year’s earnings. Nvidia could see enough growth to push the stock price higher, but it’s also possible that near-term demand is already priced into the stock price, which could limit the stock’s gains until at the end of the year.
The good news is that Nvidia isn’t the only AI stock beating the market. Nvidia has benefited from a limited supply of AI chips, but as supply improves, this could lead to increased demand for AI servers, and shares of these companies are trading at more reasonable valuations , which could generate higher returns in the short term.
Here are two AI server stocks that could outperform Nvidia for the rest of the year.
1. Super microcomputer
Super microcomputer (NASDAQ: SMCI) Supermicro stock has outperformed Nvidia in 2024, up 188%. It sells rack-mounted systems for data centers. Because of its exposure to the broader demand for AI chips, Supermicro (as it is also known) is a solid alternative to Nvidia.
Supermicro sells into multiple markets including 5G connectivity and advanced computing. But demand for its plug-and-play rackmount systems featuring data center chips from Nvidia and Advanced microsystems are currently the main drivers of its growth. Revenue jumped 200% year-over-year last quarter, reflecting Nvidia’s growth.
Selling server systems is a competitive market, but it’s encouraging to see that Supermicro is growing faster than the rest of the industry. The company maintains close relationships with suppliers like Nvidia, which allows it to offer innovative solutions before its competitors. It is currently promoting the adoption of direct liquid cooling solutions, which it has been developing for years, to better manage the heat generated by AI computing systems.
If it continues to outperform the rest of the server sector, the stock could see substantial upside potential. Wall Street analysts expect Supermicro’s earnings per share to grow at an annualized rate of 46% over the next few years, higher than the 33% estimate for Nvidia.
Additionally, Supermicro stock also offers better value than Nvidia. Its current forward price-to-earnings (P/E) ratio is 35, lower than Nvidia’s forward P/E multiple of 45. Investors are getting more earnings growth at a lower price with Supermicro – a recipe for higher returns.
2.Dell Technologies
Dell Technologies (NYSE: DELL) shares are up 80% year-to-date, but the company’s stock could outperform Nvidia for the rest of the year as demand for the company’s AI servers accelerates.
Dell generates most 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 in the latest quarter. AI server shipments more than doubled from the same period last year. Over the past year, AI server revenue has exploded from zero to $1.7 billion, and that’s just the beginning.
AI server sales are weighing on Dell’s gross margin, but strong revenue growth expected in the AI ​​server business could support substantial earnings growth and send the stock higher over the next few years.
The company’s AI server backlog grew about 31% in the most recent quarter, to $3.8 billion. This increase could reflect new business from You’re hereaccording to Evercore Amit Daryanani, ISI analyst. Dell appears to be in a strong competitive position, as the analyst believes Dell has won a greater number of server contracts with the electric vehicle maker than with Supermicro.
Wall Street analysts are forecasting 12% annual earnings growth over the next few years, and those estimates could rise further once Dell’s PC business recovers. The stock’s forward P/E of 18 looks attractive relative to the potential for accelerating earnings growth and could provide superior returns.
Should You Invest $1,000 in Super Micro Computer Right Now?
Before you buy Super Micro Computer stock, consider the following:
THE Motley Fool, securities advisor The team of analysts has just identified what they believe to be the 10 best stocks for investors to buy now…and Super Micro Computer wasn’t one of them. The 10 stocks selected could produce monster returns in the years to come.
Consider when Nvidia I made this list on April 15, 2005… if you had $1,000 invested at the time of our recommendation, you would have $759,759!*
Stock Advisor provides investors with an easy-to-follow plan for success, including portfolio building advice, regular analyst updates, and two new stock picks each month. THE Equity Advisor the service has more than quadrupled the return of the S&P 500 since 2002*.
*Stock Advisor returns as of June 24, 2024
John Ballard holds positions in Advanced Micro Devices, Nvidia and Tesla. The Motley Fool holds positions and recommends Advanced Micro Devices, Nvidia and Tesla. The Mad Motley has a disclosure policy.
Nvidia stock is up 149% this year. Here are 2 stocks that could outperform it through the end of 2024. was originally published by The Motley Fool
