Year to date, Nvidia (NASDAQ: NVDA) and Super Micro Computer (NASDAQ: SMCI) have been the best-performing stocks in the Nasdaq 100 and two of the three best-performing stocks in the S&P 500. Both companies have elected to split their stocks to make shares more affordable. Specifically, Nvidia completed a 10-for-1 stock split in June, and Supermicro has a 10-for-1 stock split planned for September.
Somewhat surprisingly, Wall Street remains bullish on both companies. The median price targets imply 21% upside for Nvidia and 22% upside for Supermicro, but certain analysts see much larger gains on the horizon.
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In June, Beth Kindig at the I/O Fund published an analysis in Forbes that values Nvidia at $10 trillion by 2030, echoing a prediction Jim Cramer made two years ago. That implies 245% upside from its current market capitalization of $2.9 trillion.
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In April, Ananda Baruah at Loop Capital raised his 12-month price target on Supermicro to $1,500 per share, which implies 165% upside from its current price of $567 per share. Similarly, Hans Mosesmann at Rosenblatt set his price target at $1,300 per share, implying 129% upside.
Here’s what investors should know about these artificial intelligence (AI) stocks.
1. Nvidia
Nvidia graphics processing units (GPUs) were originally designed to render stunning computer graphics for video games and 3D design applications. But the company repurposed its GPUs as data center accelerators when it launched its parallel computing platform CUDA in 2006. CUDA has evolved into a robust ecosystem of software tools that streamlines the development of GPU-accelerated applications across various disciplines, from computational chemistry to artificial intelligence.
Nvidia dominates the data center accelerator market. The company accounted for 98% of data center GPU shipments in 2023, according to semiconductor analysts at TechInsights. Nvidia also holds more than 80% market share in AI processors.
That dominance is partially due to superior performance. Nvidia GPUs consistently outperform competing chips at the MLPerf benchmarks, tests that provide unbiased evaluations of AI systems across training and inference.
However, the company is truly formidable because it offers a full-stack computing solution — meaning it combines the hardware, software, and services businesses need to build, deploy, and manage AI applications. I’m not only referring to GPUs and CUDA. Nvidia also provides supplemental data center hardware, like networking equipment and central processing units (CPUs), and provides a comprehensive AI-as-a-service solution called DGX Cloud.
Nvidia reported better-than-expected financial results in the first quarter of fiscal 2025 (ended April 2024). Revenue increased 262% to $26 billion on strong momentum in the data center segment, and non-GAAP net income surged 461% to $6.12 per diluted share. CEO Jensen Huang said, “Our data center growth was fueled by strong and accelerating demand for generative AI training and inference on the Hopper platform.”
Wall Street expects Nvidia to grow adjusted earnings at 52% annually through fiscal 2026 (ending January 2026). That consensus estimate makes its current valuation of 57.7 times adjusted earnings look reasonable.
Investors interested in purchasing shares of Nvidia should start with a small position today. If the stock drops following the upcoming earnings report on Aug. 28, consider using that opportunity to build a slightly larger position.
Eventually, I believe Nvidia could be a $10 trillion company, but I’m skeptical about it reaching that milestone by 2030.
2. Super Micro Computer
Supermicro manufactures high-performance computing platforms, including storage solutions and servers optimized for intensive workloads like data analytics and artificial intelligence. The company holds a leadership position in the AI server market, due to its modular approach to product design and its internal manufacturing capabilities.
Specifically, Supermicro makes “electronic ‘building blocks’ that can be assembled into servers in an almost endless number of combinations. Rivals offer a more limited menu to customers,” according to The Wall Street Journal. The company also handles most research, development, and assembly at facilities in Silicon Valley, which support the rapid rollout of servers featuring the latest from suppliers like Nvidia.
Supermicro reported mixed financial results in the fourth quarter of fiscal 2024 (ended June 30). Revenue surged 143% to $5.3 billion on record demand for AI infrastructure. But non-GAAP net income rose just 78% to $6.25 per diluted share as costs associated with direct liquid cooling (DLC) components pressured margins.
Wall Street anticipated adjusted earnings growth of 130%. That miss caused the stock to tumble 17% following the report.
However, management provided important context on the earnings call. While gross profit margin dropped 5.8 percentage points to 11.2% in the fourth quarter, CFO David Weigand told analysts that figure should normalize between 14% and 17% by the end of fiscal 2025 as DLC manufacturing capacity scales. Moreover, investments in DLC could help Supermicro gain share in AI servers.
Liquid-cooled AI servers reduce data center power consumption. So demand for DLC solutions is expected to increase rapidly, representing at least 15% of all data center installations in the next two years, up from less than 1% historically. Supermicro has emerged as an early leader in DLC solutions, which could ultimately boost demand for its AI servers.
Wall Street expects Supermicro to grow adjusted earnings at 41% annually through fiscal 2026. That makes the current valuation of 25.7 times adjusted earnings look cheap. That said, the stock could still plunge if Supermicro misses Wall Street’s earnings estimates in future quarters.
Investors who are comfortable with that risk could buy a small position today, but not with the expectation of triple-digit gains in the next 12 months. It could happen, but anyone counting on that outcome is begging to be disappointed.
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Trevor Jennewine has positions in Nvidia. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.
2 Stock-Split AI Stocks to Buy Before They Surge 165% and 245%, According to Certain Wall Street Analysts was originally published by The Motley Fool
Source: finance.yahoo.com