Nvidia (NASDAQ: NVDA) has been on an incredible run in 2024, with the stock up 154%. But that's only good enough for second-best year-to-date performance. Super Micro Computer (NASDAQ: SMCI), often called Supermicro, is actually outperforming it, rising nearly 200% so far this year.
It's holding a fair lead over its rival, but can Supermicro keep up this incredible run? Or is it set to be caught by the seemingly unstoppable engine known as Nvidia?
Supermicro is seeing strong demand thanks to AI
The investment thesis driving Nvidia higher is the same one that is affecting Supermicro. Nvidia's primary products are graphics processing units (GPUs), which are used by the hundreds or thousands to create incredibly powerful computers used to train artificial intelligence (AI) models. However, connecting these GPUs together so that they can interface properly and not overheat is crucial.
That's where Super Micro Computer comes in.
Supermicro designs and manufactures the servers that these GPUs go into. Whether a client is trying to purchase the biggest AI training server it can afford or a relatively small server to aid in engineering simulations, Supermicro has them covered. This customizability sets Supermicro apart from its competitors, allowing the company to excel in 2024.
In Supermicro's third-quarter fiscal year 2024 (ending March 31), revenue grew by 200% year over year, levels that echo Nvidia's growth rates. However, placing Supermicro's and Nvidia's growth rates on the same pedestal is a mistake. Unlike Nvidia, Supermicro isn't seeing as strong a quarter-over-quarter growth level (in Q3 it was 5%).
This is a critical metric to look at when a company is growing as quickly as these two are. Strong quarter-over-quarter growth shows continual demand surge, and when it looks like a typical year-over-year growth rate (Nvidia's latest quarter-over-quarter growth rate was 18%), it's a great sign.
I'm not criticizing Supermicro's growth, as it is still impressive. It's just not at the same level as Nvidia's.
So, how has Supermicro outperformed Nvidia if it isn't growing at the same pace?
Super Micro Computer is a far cheaper stock than Nvidia
Unlike Nvidia, Supermicro didn't enter 2024 with the same expectation levels. To begin 2024, Supermicro traded at a mere 12 times forward earnings versus Nvidia's 40 times forward earnings.
SMCI PE Ratio (Forward) data by YCharts.
That valuation discrepancy made all the difference in 2024's performance. But at Supermicro's current valuation, it's also trading at a fairly attractive range.
Historically, 25 times forward earnings isn't a cheap price to pay. But in this market, it's not bad, especially for a company growing as quickly as Supermicro is.
So, could Supermicro hold off Nvidia to end the year and claim the title of top performer in the S&P 500? I'd say yes. Nvidia is richly valued right now (for a good reason), and it's going to take more blowout quarters with strong earnings beats to maintain its valuation, let alone grow it.
Supermicro is trading at a reasonable price, so it doesn't need perfection to maintain its valuation. If it blows expectations away, investors shouldn't be surprised if the stock pops the following day.
While I'm not sure Supermicro will beat Nvidia over the long term, the price difference investors paid at the beginning of the year is making all the difference in terms of 2024 performance.
Should you invest $1,000 in Super Micro Computer right now?
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Keithen Drury has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
