Is Super Micro Computer a Better AI Stock to Buy Right Now Than Nvidia?

What’s the best-performing large-cap artificial intelligence (AI) stock on the market so far in 2024? I suspect many investors would quickly answer Nvidia (NVDA 0.69%). But they’d be wrong.

Yes, Nvidia has delivered sizzling gains this year despite its recent pullback. However, Super Micro Computer (SMCI 2.38%), commonly referred to as Supermicro, has been an even bigger winner. Is Supermicro a better AI stock to buy right now than Nvidia?

It largely boils down to one factor

Whenever I’m asked to choose which of two stocks is the better pick, I have a standard answer: It depends on your investing style. That’s usually the right answer, by the way.

If you’re retired and looking for steady income, a stock that pays a reliable dividend is probably a better choice for you than a growth stock with no dividend at all. On the other hand, it’s a different story altogether if you’re an aggressive investor looking for growth.

Technically, Nvidia is a better pick for income investors than Supermicro because it offers a dividend and Supermicro doesn’t. However, with Nvidia’s practically microscopic forward dividend yield of 0.035%, I doubt income investors will like either of these AI stocks.

Similarly, I don’t think value investors will find either Supermicro or Nvidia appealing. Both stocks trade at forward earnings multiples well above the threshold that would attract the interest of most value investors.

With Supermicro and Nvidia, I think the decision largely boils down to one key factor: growth. Investors trying to choose between the two stocks must determine which has stronger growth prospects.

How Wall Street views Supermicro and Nvidia

If you want a quick-and-dirty answer to that question, simply look at Wall Street forecasts. Analysts project that Supermicro will generate average annual earnings growth of around 62% over the next five years. That’s well above the average annual earnings growth of 46% expected for Nvidia.

But does Wall Street view Supermicro as the better stock to buy? Some analysts do, but not all of them.

Of the six analysts surveyed by LSEG in July who cover Supermicro, two rated the stock as a buy with the other four rating it as a hold. The overall numbers looked better for Nvidia. Twenty-one of the 38 analysts surveyed by LSEG in July rated the stock as a buy or strong buy. All but two of the others recommended holding Nvidia.

Realistic growth estimates

Should investors rely solely on Wall Street projections and ratings to choose between Supermicro and Nvidia? No. It’s important to do your own research before making a decision.

I think the bullish growth prospects for both Supermicro and Nvidia are realistic. The demand for AI will almost certainly continue to fuel explosive growth for Supermicro’s servers and storage systems and Nvidia’s graphics processing units (GPUs).

These two companies also have strong competitive advantages over their rivals. Perhaps the most important edge Supermicro and Nvidia both claim is their rapid pace of innovation. Supermicro’s revenue is growing five times faster than the industry average in large part because it’s able to introduce new products so quickly. Similarly, Nvidia is now in what CEO Jensen Huang calls “a one-year rhythm” in rolling out new GPU platforms.

Better AI stock?

So is Supermicro a better AI stock to buy right now than Nvidia? I think it is — for two main reasons.

First, valuation does come into play. Supermicro has less growth baked into its share price than Nvidia does.

Second, Supermicro uses Nvidia’s chips but also partners with AMD and Intel. Even if Nvidia loses market share to these rivals, Supermicro’s growth shouldn’t be negatively impacted.

I could be proven wrong. So could Wall Street. However, if I had to pick just one of these two AI stocks right now, I’d go with Supermicro.