Over the past year or so, artificial intelligence (AI) has proven to be a solid catalyst for many stocks, which explains why stocks are rising. super microcomputer (SMCI 6.06%) and Advanced Micro Devices (AMD 1.85%) They have increased by 607% and 101% respectively over the past 12 months.
However, a closer look at the financial performance of these companies reveals significant differences in how AI is impacting their business. While one of these companies has seen a significant increase in revenue and revenue thanks to his AI, the other is still trying to tap into this huge market.
Let’s take a closer look at the outlook for these two AI stocks and decide which one is the best buy right now.
super microcomputer case
Supermicrocomputer (commonly known as Supermicro) sells AI server solutions such as rack mounts used to deploy AI chips. The company’s customized modular server solutions are used to implement AI chips such as: Nvidia, intel, A.M.D. Unsurprisingly, as demand for AI server chips increases, sales of Supermicro’s products have skyrocketed.
The company’s fiscal second quarter 2024 revenue (ending December 31) was $3.66 billion, an increase of 103% from the same period last year. Adjusted earnings rose to $5.59 per share from $3.26 in the year-ago period. Management noted that this impressive growth is the result of both new customer acquisition and strong demand from existing customers, and that “customers continue to demand more.” [of] Supermicro’s optimized AI computer platform and rack-scale total IT solutions. ”
Additionally, Supermicro says it is establishing itself in the AI server market. As a result, the company now expects fiscal 2024 sales to be between $14.3 billion and $14.7 billion. This is a significant increase from the previous guidance range of $10 billion to $11 billion. If Supermicro meets this goal, it would more than double its revenue starting in fiscal 2023.
AI plays a key role in this impressive revenue surge, as the company derives more than half of its total revenue from selling server solutions to this market. That’s why investors shouldn’t be surprised if Supermicro ends fiscal 2024 with even better earnings growth. Demand for AI servers is growing rapidly – researchers say gartner This market is estimated to have an annual growth rate of 30% until 2027.
Supermicro is aggressively investing in capacity expansion to take full advantage of this opportunity. In its latest earnings call, management said the new production site “will increase our annual revenue capacity to more than $25 billion.” This explains why the analyst is optimistic about Supermicro’s long-term prospects, estimating that the company’s profits could grow at an annual rate of 48% over the next five years.
As a result, Supermicro could remain a top AI stock for years to come and maintain its impressive stock price growth.
For AMD
AMD’s stock price has doubled over the past year, but much of that rise has been driven by hype. This is evident from the graph below.
AMD Revenue (TTM) data by YCharts.
Additionally, AMD’s fourth-quarter financial results released on January 30 indicate that the company’s AI business will not be as big as Supermicro. AMD expects that in 2024 he will generate at least $3.5 billion in revenue from AI chip sales. We have already seen that Supermicro derives more than half of its total revenue from the sale of AI hardware. So Supermicro’s $14.5 billion revenue forecast for this year suggests that AI could boost the server maker’s annual sales by more than his $7 billion.
However, the good news is that AMD has significantly increased its AI-related revenue outlook for 2024. The company previously predicted that sales of its AI chips this year would be $2 billion. The company significantly raised its guidance given the early positive reception among buyers for its MI300 Instinct family of accelerators, which it launched in December.
“We have also made significant progress working with our supply chain partners and secured additional production capacity to support the upside in demand,” CEO Lisa Su said during the fourth quarter earnings call. Therefore, it’s quite possible that AMD will be able to generate more revenue from its AI business and raise its guidance as the year progresses. However, investors should be aware that AI is a small portion of AMD’s overall business, and the company faces challenges in key areas.
As a result, it’s no wonder that analysts expect sales to increase 14% to $26 billion in 2024, which is significantly slower than the growth Supermicro is expected to achieve. It is also worth noting that AMD’s growth is expected to accelerate in 2025, with sales reaching his $32.3 billion, an increase of 25%. However, this is lower than his 30% revenue increase that Supermicro is expected to achieve next year.
Therefore, AI could have a significant positive impact on Supermicro compared to AMD. But this isn’t the only reason why Supermicro appears to be the better AI bet right now.
This valuation makes it clear which AI stocks are better to buy
Supermicro is growing at a much faster pace than AMD. Furthermore, AMD’s price-to-sales ratio is currently at a very high level of 11 times, while its sales are currently trading at a discount of 3.6 times. Additionally, as far as Supermicro’s future valuation multiple is concerned, Supermicro is cheaper than AMD.
AMD PE Ratio (Forward 1y) data by YCharts.
So when compared to AMD, it’s easy to see that Supermicrocomputer is a good AI stock to buy right now. Because supermicrocomputers are not only cheap, but are experiencing significant growth due to the surge in demand for server solutions.
Harsh Chauhan has no position in any stocks mentioned. The Motley Fool has a position in and recommends Advanced Micro Devices and his Nvidia. The Motley Fool recommends Gartner, Intel, and Super Micro Computer and recommends the following options: Long January 2023 $57.50 calls on Intel, long January 2025 $45 calls on Intel, and short February 2024 $47 calls on Intel. The Motley Fool has a disclosure policy.
