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This stock beat Nvidia in the first half of the year. Can it do it again?
Nvidia (NASDAQ: NVDA) has boosted its earnings in the first half of the year, gaining about 150% after already rising 1,300% over the past five years. The company dominates the artificial intelligence (AI) chip market, holding an 80% share, and also sells a variety of related products and services to companies launching AI projects. That has resulted in growth, with profits rising in the triple digits quarter after quarter.
As good as that sounds, Nvidia isn’t the best performer of the first half of the year. Another stock actually outperformed the chipmaker, soaring 188%. This company also operates in the AI space and has seen profits soar — and this player actually benefits from the growth of Nvidia and other chip designers.
Can this Nvidia and market action offer investors a repeat performance in the second half of the year? Let’s find out.
Image source: Getty Images.
Serving AI data centers
The player who has impressed the market in recent times has actually been around for quite some time — over 30 years, to be exact. I’m talking about Super Micro Computer (NASDAQ: SMCI), a manufacturer of servers, workstations, full rack-scale solutions, and other equipment critical to AI data center operations. Supermicro’s revenue has steadily increased over the years, but the AI boom marked a clear turning point, helping sales and net income soar.
Earlier this year, Supermicro reported its first quarter of $3 billion — that was the company’s annual revenue level in 2021.
Supermicro has benefited from demand for cutting-edge AI chips because customers often need not just one chip but a variety of devices — and the company integrates those chips into its products. So when Nvidia or IntelFor example, when a new chip is released, this creates demand for Supermicro products as well. To maximize the benefit, Supermicro works closely with these companies, monitoring their development pipelines so that it can immediately include their innovations in its equipment.
And Supermicro’s “building block” process — with most of its products sharing common parts — also makes it easier to quickly produce equipment tailored to customers’ needs. All of this has helped the company grow five times faster than its industry in the past 12 months.
There’s reason to be optimistic that this will continue because the AI market’s growth is in its early days. Analysts predict that the current $200 billion market will reach more than $1 trillion by the end of the decade — and that should translate into sustained demand for Supermicro’s products.
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A new engine of growth
Additionally, Supermicro’s direct liquid cooling (DLC) technology could serve as a new growth driver for the company. AI data centers generate a tremendous amount of heat, and this situation will only get worse as workloads intensify.
But Supermicro’s DLC technology solves that problem, and customers are now taking notice. Supermicro’s DLC solutions, having grown from zero market share to less than 1 percent in the company’s 30-year history, could have as much as 30 percent share in the next two years, The Taipei Times reported, citing the company’s CEO, Charles Liang.
All of which means Supermicro’s spectacular growth may be far from over, and in the second half of this year, Nvidia’s launch of its revolutionary new architecture — Blackwell — and chip could give the equipment maker a fresh boost. Supermicro recently previewed its Blackwell products and says it is focused on developing new generative AI and inference-optimized systems that accommodate the market leaders’ latest chips.
Could Supermicro beat Nvidia?
Now, back to our question: Can Supermicro continue to beat Nvidia and the market in general in the second half of the year? I think it’s very likely that this hardware giant will outperform the market, thanks to its growth prospects and position in the hot AI space.
As for beating Nvidia’s earnings, it’s possible. Despite Supermicro’s first-half surge, the company trades at a significant discount to the chip designer — about 24x future earnings estimates versus 46x for Nvidia. At the same time, Supermicro’s five-year earnings per share growth estimate of 62% beats the average estimate of 46% for Nvidia.
These points could attract investors and help Supermicro take off in the second half of the year. But even if this cutting-edge equipment company doesn’t deliver a repeat performance in the coming months, that’s okay. Supermicro still has what it takes to deliver long-term earnings growth and stock performance, and that’s great news for investors today.
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Adrian Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool recommends Intel and recommends the following options: long January 2025 $45 calls on Intel and short August 2024 $35 calls on Intel. The Motley Fool has a disclosure policy.
This stock beat Nvidia in the first half of the year. Can it do it again? was originally published by The Motley Fool