The top investing story of the day is Nvidia Corp.’s (NASDAQ: NVDA) solid first-quarter results, accompanied by a hard-to-believe second-quarter revenue outlook that was 50% higher than the Wall Street estimate. Given some comments from CEO Jensen Huang on the conference call following the earnings release, the AI revolution is about to pour $1 trillion into the pockets of suppliers to data centers.
These include chipmakers like Intel, software providers like ServiceNow and semiconductor equipment makers like ASML, but there are a few companies that investors believe are going to benefit more than others. Here is a look at four of them, plus one that is likely on the way.
Super Micro Computer Inc. (NASDAQ: SMCI) traded up about 19% Thursday morning, trailing only Nvidia’s 25% uptick. The company manufactures high-performance servers and storage solutions for data centers. If there is anything that AI applications need as much as processing power, it is a place to keep and from which to retrieve the massive amounts of data generated by the large language models AI requires. Super Micro fits the bill here.
Over the past year, Super Micro has added 325% to its share price. Nvidia’s 137% gain pales in comparison. The consensus estimates call for June-quarter revenue to rise 40% sequentially and about 10% year over year. The price-to-earnings multiple for the next 12 months is 18.7, compared to Nvidia’s 84.1 multiple. By nearly every valuation measure, Super Micro is undervalued.
Analyst coverage is sparse, with just six brokerages covering Super Micro. Four of them have a Buy or Strong Buy rating, and the other two rate it at Sell. At around $203.50 Thursday morning, shares traded above the average price target of $167.50. Expect more coverage of Super Micro, along with higher expectations.
Advanced Micro Devices Inc. (NASDAQ: AMD) competes with Nvidia and Intel in the graphics processor market and with Intel in the CPU market. AMD is Nvidia’s only significant challenger in GPU sales, and it is a distant second. But investors are betting that if Nvidia is right about the growth prospects for data center AI, then AMD stands to benefit.
AMD stock has added 30% over the past year, far less than either Nvidia or Super Micro. The consensus revenue estimate indicates that Wall Street expects a relatively flat second quarter and a revenue decline of 3% for AMD’s 2023 fiscal year. The company’s price-to-earnings multiple is 41.4, about halfway between Nvidia and Super Micro.
Many more analysts (42 in all) pay attention to AMD. By a margin of more than 2 to 1, the stock is rated a Buy or Strong Buy, rather than a Hold. No analyst recommends that the stock be sold. Like Super Micro, shares traded above their average price target Thursday morning at around $119, compared with a target of around $106. AMD’s reliance on the PC market, which is expected to be down this year, cannot all be met by more shipments into data centers.
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