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This Incredibly Cheap Artificial Intelligence (AI) Stock Is Soaring Like Nvidia, and It Is a Screaming Buy

Motley Fool - Fri Nov 10, 2023

Nvidia has been one of the hottest artificial intelligence (AI) stocks on the market in 2023, with its shares having more than tripled thanks to the way AI has supercharged the its revenue and earnings growth.

However, Nvidia isn't the only stock that has won big from the proliferation of AI. Shares of Super Micro Computer(NASDAQ: SMCI) have matched Nvidia's returns in 2023 with gains of 208%.

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The good part is that Super Micro Computer stock remains incredibly affordable despite its eye-popping surge. It is trading at just under 2 times sales right now, while the trailing earnings multiple of 22 seems like a bargain considering how fast it is growing. What's more, Super Micro's forward earnings multiple of 7 suggests a big jump in the company's bottom line.

For comparison, Nvidia carries a rich sales multiple of 35 and trades at 110 times trailing earnings. Although its forward earnings multiple of 55 suggests a sharp increase in earnings, it is still on the expensive side compared to Super Micro. All this makes buying Super Micro stock a no-brainer right now, especially considering the healthy pace at which it is growing.

Super Micro Computer delivers solid results once again

Super Micro released fiscal 2024 first-quarter results (for the three months ended Sept. 30) on Nov. 1. The company's revenue increased 15% year over year to $2.12 billion, which is higher than the $2.05 billion revenue it was anticipating at the midpoint of its guidance range. Super Micro's adjusted earnings of $3.43 per share landed at the higher end of its guidance range of $2.75 per share to $3.50 per share.

The company's top and bottom lines were ahead of consensus estimates. More importantly, Super Micro delivered solid guidance as well. It anticipates fiscal Q2 revenue of $2.8 billion at the midpoint of its guidance range, while non-GAAP (adjusted) earnings could land at $4.64 per share. Analysts would have settled for $4.11 per share in earnings on $2.55 billion in revenue.

Super Micro's guidance suggests that its top line is on track to jump an impressive 55% year over year. The bottom-line growth is set to be solid as well, as the company delivered $3.26 per share in adjusted earnings in the same period last year. This terrific acceleration in Super Micro's growth can be attributed to the robust demand for the company's modular, high-performance, and energy-efficient server solutions, which are finding traction with customers such as Nvidia thanks to the AI boom.

According to CEO Charles Liang, "During the first quarter, demand for our leading AI platforms in plug-and-play rack-scale, especially for the LLM-optimized NVIDIA HGX-H100 solutions, was the primary growth driver."

Liang added that customers have been turning toward its server solutions to reduce energy costs, overcome power constraints, and overcome thermal challenges posed by AI servers. Even better, Super Micro claims that its customers have been "able to double their datacenter AI computing capacity" with its solutions, which are capable of lowering power consumption requirements.

In fact, the demand for Super Micro's offerings is so strong thanks to the growth in generative AI workloads that the company's orders are growing faster than it was anticipating. As a result, the company is now aggressively focusing on increasing its production capacity by 25% to meet the booming end-market demand.

The stock's hot rally is here to stay

AI server demand has simply taken off this year, and this has rubbed off positively on Super Micro's performance. Market research firm TrendForce estimates that AI server shipments could jump 38% this year. Through 2026, AI server shipments could increase at an annual rate of 22% through 2026, indicating that Super Micro's business is set to enjoy healthy growth.

Not surprisingly, the company says that its fiscal Q2 guidance is "a very conservative number." What's more, Super Micro has raised its full-year revenue guidance to a range of $10 billion to $11 billion, up from its prior forecast of $9.5 billion to $10.5 billion. Management, however, says that even the upgraded guidance is on the conservative side.

The midpoint of the new guidance indicates that Super Micro's full-year revenue could increase by 48%, at least. That would be substantially higher than the 36% revenue growth the company clocked in fiscal 2023. So it won't be surprising to see this AI stock sustain its outstanding momentum on the market and deliver more gains to investors, which is why those who haven't bought Super Micro yet may want to do so right away, considering its attractive valuation.

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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool recommends Super Micro Computer. The Motley Fool has a disclosure policy.

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