Better buy with stock split: Nvidia vs. Super Micro Computer

Investors love a good stock split, and here’s why. While these maneuvers do not change the value of a company, they lower the price per share of high-flying stocks, making the purchase of full shares more accessible to a wider range of investors.

In a 10-for-1 stock split of a stock trading for $1,000, for example, you would only need to invest $100 to get a share of the company after the split. The company has more shares selling at a lower price, but the overall market capitalization hasn’t changed, and individual investors still own the same dollar amount of shares. When a company splits its stock, it also shows a degree of optimism about the future, with the idea that the stock will take off again and may even return to previous levels.

Stock splits have flourished in recent times, led by major companies in industries. And the tech industry, which accounted for much of the stock’s gains in the first half of the year, was a big part of the story. These companies include two leading players in the field of artificial intelligence (AI), Nvidia (NVDA 0.75%) and Super Micro Computer (SMCI -2.89%).

Nvidia completed a 10-for-1 split in June, and Supermicro recently announced a 10-for-1 split, with shares set to begin trading at the new price on October 1. Both of these players have grown over the past few years. years thanks to their dominance of the AI ​​market, and they make great long-term buys — but which one is the best buy today?

Image source: Getty Images.

The case for Nvidia

Nvidia is the global leader in AI chips with an 80% share, but it didn’t stop there. The tech giant has expanded its offerings to include a huge suite of AI products and services, and has tapped into new growth areas such as enterprise software and sovereign AI. All of this has helped Nvidia grow triple-digit revenue and net income quarter after quarter and achieve a gross margin of over 70%.

This is likely not going to end anytime soon, as the demand for AI is in its infancy, with the current $200 billion market predicted to reach $1 trillion by the end of the decade. In addition, Nvidia is a true innovator, committing to updating its graphics processing units (GPUs) annually.

And right now, we’re just weeks away from a key launch. Nvidia plans to ramp up production of its new Blackwell architecture and highest-performance GPU ever in the coming months. The company is predicting even billions of dollars in revenue from this platform in the fiscal quarter that ends in January. Demand already outstrips supply — and the world’s top tech companies are Nvidia’s biggest customers — so there’s reason to be optimistic about Nvidia maintaining its chip lead.

Case for Supermicro

Supermicro benefits from the latest innovations from Nvidia and other top chip designers, as well as its own. The company is an equipment manufacturer — it develops everything from workstations to servers — and includes the latest chips from Nvidia and others in its products. In fact, Supermicro works hand-in-hand with chip leaders so that it can immediately integrate their innovations into its equipment.

All of this means that Nvidia’s Blackwell launch should boost Supermicro’s earnings as well. Supermicro has seen exceptional growth, five times the industry over the past 12 months, he says, thanks to its strategy of working closely with chip designers and using a building block technology approach. By blocks, I mean that most of the company’s main products include similar parts, which makes a product quick and efficient to adapt to the customer’s needs.

This helped Supermicro’s earnings grow. And now, there may be even more growth ahead as Supermicro’s direct liquid cooling (DLC) technology solves one of the biggest problems facing data centers: heat generated by AI projects. Supermicro expects 25% to 30% of new data centers to use DLC in the next 12 months, and that the majority will be supplied by Supermicro.

Nvidia or Supermicro?

It’s clear that as long as demand for AI products and services continues to grow, Nvidia and Supermicro will benefit. And both companies have established solid earnings and posted strong performance results. The only thing that differentiates them now is the rating. Nvidia trades for 38 times forward earnings estimates, while Supermicro trades for just 12 times estimates.

Earlier in the year, their valuations were similar — and at one point Supermicro was even more expensive. Recently, however, two news weighed on the equipment manufacturer. Short seller Hindenburg Research issued a report alleging trouble at Supermicro, and separately, Supermicro delayed filing its annual 10-K report. From what we know so far, I don’t see these as issues that change Supermicro’s long-term story — and that means Supermicro looks very cheap, which makes it a better buy now.