Better Stock AI: Nvidia vs. Super Micro Computer

Nvidia (NVDA -1.66%) and Super Micro Computer (SMCI -4.14%) were two of the best artificial intelligence (AI) stocks on the market. Nvidia is the world’s largest manufacturer of high-end data center GPUs for processing machine learning and AI tasks. Super Micro Computer, better known as Supermicro, is a fast-growing provider of dedicated AI servers. Most of these systems are powered by Nvidia GPUs.

Over the past two years, Nvidia stock is up more than 640% as Supermicro stock is up nearly 550%. Both stocks rose as the rapid expansion of the generative AI market prompted more companies to upgrade their data centers with new AI chips and servers. But should investors be chasing any of these high-flying AI stocks right now?

Image source: Getty Images.

Nvidia is still firing on all cylinders

Nvidia once generated most of its revenue from PC gaming GPUs. But the rapid expansion of the AI ​​market has turned its data center unit, which accounted for 87 percent of the top line in its last quarter, into its largest and fastest-growing business.

That’s why Nvidia’s revenue rose 126% in fiscal 2024, which ended in January 2024, and 171% year-over-year in the first half of fiscal 2025. Analysts expect revenue and adjusted earnings per share ( EPS) to grow by 123% and 137%, respectively, for the full year.

These growth rates are incredible, but Nvidia still faces some unpredictable challenges. It controlled 98 percent of the data center GPU market last year, according to TechInsights, but faces stiff competition from AMDIts cheaper GPUs. Nvidia has also struggled to ramp up production of its latest Blackwell GPUs and some of its top AI customers — including MicrosoftOpenAI and AlphabetGoogle — they developed their own AI acceleration chips from the first party.

Sales of Nvidia’s data center chips are gradually cooling. The 16% sequential sales growth in the second quarter of fiscal 2025 actually marked a deceleration from 23% growth in the first quarter and 27% growth in the fourth quarter of fiscal 2024. Its yield issues with Blackwell they also reduced their gross margin sequentially in the second quarter.

Analysts expect Nvidia’s revenue and adjusted EPS to both grow 41% in fiscal 2026. Its stock doesn’t look that expensive at 44 times forward earnings, but it could shed its premium valuation if companies start to control their and to control their expenses with artificial intelligence.

Supermicro faces some major challenges

Supermicro is an underdog in the server market, but has carved a niche for itself by making high-performance liquid-cooled servers. This made it an ideal partner for Nvidia, providing it with a steady supply of GPUs for its high-end AI servers.

Supermicro’s revenue rose 37% in fiscal 2023, which ended last June, and will rise 110% in fiscal 2024. Its growing AI server sales, which now account for more than half of its top line, have offset slower sales of traditional servers. Bank of America the company is expected to expand its AI server market share from 10% to 17% over the next three years.

But in the fourth quarter of fiscal 2024, Supermicro’s gross margin shrank sequentially and year-over-year as it grappled with supply chain issues, stepped up spending on new liquid-cooling technologies and faced greater pressure on prices from Dell Technologies and Hewlett-Packard Enterprise in the AI ​​server market.

On August 27, prolific vendor Hindenburg Research accused Supermicro of filling its sales channels with partial orders of defective products and inflating its revenue. It also said Supermicro had not resolved all the accounting issues that had previously caused its stock to be delisted. Nasdaq in 2018. A day later, Supermicro delayed its 10-K filing for fiscal 2024 and said it needed “additional time” to evaluate its “internal controls over financial reporting.”

Analysts still expect Supermicro’s revenue and earnings to grow 90% and 58%, respectively, in fiscal 2025 as it ramps up its AI server shipments. For fiscal 2026, its revenue and earnings are expected to grow 19% and 30%, respectively. Those growth rates look impressive for a stock that trades at just 13 times forward earnings, but its recent troubles could chase away bulls and squeeze valuations for the foreseeable future.

Buy Better: Nvidia

Nvidia remains the linchpin of the booming AI market, and its market dominance still gives it pricing power. We can’t say the same for Supermicro, which is much smaller than Dell and HPE. Supermicro’s late 10-K filing could also contain some nasty surprises, providing more fuel for Hindenburg’s bearish thesis against the company. We once thought Supermicro had a shot at beating Nvidia this year, but its declining gross margin, the Hindenburg allegations, and its delayed 10-K filing raise too many red flags. That’s why I’d stick with Nvidia over Supermicro as my top AI game.