Super Micro Computer: Riding the AI Wave
Super Micro Computer, also known as Supermicro, is a company that has been making technology hardware since 1993. Although it wasn’t very popular at first, things changed as more companies started using the cloud during the COVID-19 pandemic. This shift made Supermicro’s server technology more in demand.
An interesting fact is that Nvidia’s AI chips power Supermicro’s servers, which caught the attention of investors in 2023. According to Allied Market Research, the AI chip market is expected to grow by 38% every year until 2032. This prediction has made Supermicro more appealing to investors. In early 2023, its stock was $82 per share and skyrocketed to $1,229 per share within 15 months.
Even though the stock price has pulled back a bit, Supermicro’s financial results are strong. It made $15 billion in revenue in the first half of 2024, which is a 110% increase from the same period in 2023. Despite the rising costs affecting profits, the company still reported $1.2 billion in earnings, which is 89% higher than the previous year.
For potential investors, Supermicro’s stock now sells at 31 times its earnings with a PEG ratio of 0.4. The PEG ratio is a tool that helps investors understand the company's growth potential in relation to its earnings. A lower ratio suggests the stock might be undervalued. Given the high demand for its servers, this might be a good time to invest in Supermicro.
AMD: A Strong Contender in AI Chips
Advanced Micro Devices (AMD) is another company making waves in the AI chip market. While Nvidia leads the market, AMD is positioning itself as a strong competitor. It introduced the MI300 series of AI chips and has been expanding its capabilities by acquiring companies like Silo AI and ZT Systems.
In the first half of 2024, AMD’s data center segment, which includes AI chips, saw a 98% revenue increase, outpacing its overall growth of 6%. This segment brought in $5.2 billion in revenue, accounting for 46% of AMD’s total revenue of $11.3 billion. This is a significant change from 2023, where the data center segment was a smaller part of the company’s total revenue.
If AMD's trend mirrors that of Nvidia, AI chips could become its main focus. Although AMD's P/E ratio is high at 189, this is partly due to its recent return to profitability. Instead, looking at its P/S ratio of 11, which is much lower than Nvidia's 40, might be more telling. As AMD’s data center revenue grows, it may attract more investors, leading to potential growth for the stock.
