Prediction: 1 AI stock split to buy before it rises 100% in the next year (hint: not Nvidia)

Two artificial intelligence (AI) actions led S&P 500 (SNPINDEX: ^GSPC) bigger this year. Semiconductor company Nvidia (NASDAQ: NVDA) and server manufacturer Super Micro Computer (NASDAQ: SMCI) saw their share prices rise 159% and 119% respectively.

Both companies recently announced 10-for-1 stock splits to make the stock more affordable. Nvidia completed its split in June, and Super Micro Computer will follow suit at the end of September. But Wall Street analysts expect both stocks to move even higher over the next 12 months.

Nvidia’s average target of $140 per share implies a 10% upside from the current share price of $127. And Super Micro’s median target of $693 per share implies a 16% upside from its current share price of $600. But I think Super Micro stock will rise 100% over the next year, reaching a split-adjusted share price of $120 by August 2025.

That said, patient investors should consider buying both stocks.

Nvidia: Delayed Blackwell shipments create uncertainty ahead of earnings

Nvidia reported excellent first-quarter financial results, smashing top and bottom estimates. Revenue rose 262% to $26 billion, and non-GAAP net income rose 461% to $6.12 per diluted share. CEO Jensen Huang said, “Our data center growth has been fueled by strong and accelerating demand for generative AI training and inference on the Hopper platform.”

However, shipments of Nvidia’s Blackwell GPUs will be delayed by three months due to a design flaw “discovered unusually late in the production process,” according to The Information. The Blackwell chips can run training and inference workloads faster than the previous generation Hopper, which should further cement Nvidia’s leadership position in AI chips.

Following the report, Nvidia shares fell to their lowest level since May, but the stock has since rebounded, suggesting the market sees little cause for concern. indeed Deutsche Bank analyst Ross Seymore doubts Blackwell’s delayed launch will have a material impact on Nvidia’s near-term outlook or its ability to meet Wall Street estimates.

However, investors should proceed with caution. Management has yet to address the issue, so it represents an unknown that calls for an explanation when the company reports earnings on August 28. Expectations are already high given that Nvidia has crushed Wall Street estimates in recent quarters, so bad news could send the stock lower. drops suddenly.

Looking ahead, Wall Street expects Nvidia’s earnings to grow 37% annually over the next three years. That makes the current valuation of 75 times earnings look a bit expensive, though not absurdly expensive. Patient investors can buy a very small position today, provided they are comfortable with the possibility of a decline after earnings. In this scenario, investors should consider buying a slightly larger position on the pullback.

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Super Micro Computer: The market leader in AI servers is expected to gain traction

Super Micro Computer designs servers and storage solutions for the cloud and private data centers. In-house manufacturing capabilities and a unique approach to product development allow the company to quickly build servers with the latest chips from vendors such as Nvidia. As a result, Super Micro typically beats competitors to market by two to six months, according to CEO Charlies Liang.

This advantage has made Super Micro a leader in artificial intelligence (AI) servers, and analysts expect the company to gain traction quickly. Bank of America Analysts expect Super Micro to account for 17% of AI server sales by 2026, up from 10% last year. KeyBanc’s Tom Blakely is more optimistic. He believes Super Micro’s market share could exceed 20% this year. He also says the company has “competitive moats that should sustain, if not expand, this share in the years to come.”

Supermicro reported mixed financial results in the fourth quarter of fiscal 2024 (ended June 30). Revenue rose 143% to $5.3 billion on record demand for AI infrastructure. However, gross margin fell 5.8 percentage points to 11.2% and non-GAAP net income rose just 78% to $6.25 per diluted share. Wall Street had expected non-GAAP earnings to rise 130% to $8.14 per diluted share.

The stock fell following the report, reflecting concerns that margins have contracted as Super Micro lacks pricing power in an increasingly competitive market. But CEO Charles Liang attributed the reduction to the cost margin associated with direct liquid cooling (DLC) components. Furthermore, he expects gross margin to normalize between 14% and 17% by the end of fiscal 2025 (ending June 2025) as DLC servers start shipping in higher volume.

Importantly, investments in DLC technology could strengthen Super Micro’s position as the market leader in AI servers. Liquid cooling is more cost-effective than traditional air cooling, so the demand for DLC servers is expected to grow rapidly in the coming years as data centers are filled with powerful AI hardware that generates huge amounts of heat. Super Micro positioned itself as an early leader in DLC technology.

Looking ahead, Super Micro’s guidance for fiscal 2025 implies revenue growth between 74% and 101%. If the company reaches the upper end of this range, its stock price could increase by 100% without any change in the price-to-sales ratio. And the stock is currently trading at 2.5 times sales, a discount from its 12-month average of 3.3 times sales. That’s why I think Super Micro stocks will double by August 2025.

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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.

Prediction: 1 Stock-Split AI Stock to Buy Before It Rises 100% in the Next Year (Hint: Not Nvidia) was originally published by The Motley Fool