Nvidia (NASDAQ: NVDA) has been one of the best stocks to own in the artificial intelligence (AI) race so far. The company’s revenue has tripled year over year in recent quarters, sending the stock up 149% in the first half of 2024.
With these high stock prices, Nvidia’s valuation looks stretched. The stock’s forward price-to-earnings ratio was less than 30 for the start of the year, but now trades at a more expensive 45 times this year’s earnings consensus estimate. Nvidia could experience enough growth to push the stock higher, but there’s also a chance that short-term demand has already baked into the stock price, which could limit the stock’s gains through the end of the year.
The good news is that Nvidia isn’t the only AI stock beating the market. Nvidia has benefited from a tight supply of AI chips, but as supply improves, it could drive more demand for AI servers, and shares of these companies trade at more reasonable valuations, which could create superior returns in the near term.
Here are two AI server stocks that could outperform Nvidia for the rest of the year.
1. Super Micro Computer
Super Micro Computer (NASDAQ: SMCI) Shares have outperformed Nvidia in 2024, up 188%. It sells rack-mount systems for data centers. Because of its exposure to the broader demand for AI chips, Supermicro (as it’s also known) is a solid alternative to Nvidia.
Supermicro is sold in several markets, including 5G connectivity and edge computing. But demand for its plug-and-play systems featuring data center chips from Nvidia and Advanced Micro Devices are the main drivers of its growth now. Revenue grew 200% year-over-year last quarter, reflecting Nvidia’s growth.
Selling server systems is a competitive market, but it’s encouraging to see Supermicro grow faster than the industry. It maintains close relationships with suppliers such as Nvidia, which helps the company provide innovative solutions ahead of competitors. It is currently pushing the adoption of direct liquid cooling solutions, which it has been developing for years, to better manage the heat generated by AI computing systems.
If it continues to outperform the rest of the server industry, the stock could have significant upside. Wall Street analysts expect Supermicro’s earnings per share to grow at an annual rate of 46% over the next several years — higher than the 33% estimate for Nvidia.
Additionally, Supermicro stock also offers better value than Nvidia. Its current price-to-earnings (P/E) ratio is 35 — lower than the 45 forward P/E multiple for Nvidia. Investors are getting more earnings growth for a lower price with Supermicro — a recipe for superior returns.
2. Dell Technologies
Dell Technologies (NYSE: DELL) shares are up 80% year-to-date, but the company’s shares could outperform Nvidia for the rest of the year due to accelerating demand for the company’s AI servers.
Dell generates most of its revenue from customer solutions, which include PC sales, but infrastructure solutions is its fastest-growing business, with revenue up 22% year over year in the quarter. passed. AI server shipments have more than doubled over the year-ago period. Over the past year, AI server revenue grew from zero to $1.7 billion, and that’s just getting started.
AI server sales are weighing on Dell’s gross margin, but strong revenue growth expected in the AI server business could support significant earnings growth to boost the stock over the next few years.
The company’s AI server support grew roughly 31% in the last quarter to $3.8 billion. This increase may reflect new business from Teslaaccording to Evercore ISI analyst Amit Daryanani. Dell appears to be in a strong competitive position, as the analyst believes Dell won a larger amount of server business with the electric vehicle maker than Supermicro.
Wall Street analysts expect revenue to grow 12% annually over the next several years, and those estimates could rise further once Dell’s PC business recovers. The stock’s forward P/E of 18 looks attractive against the potential for accelerating earnings growth and could provide superior returns.
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John Ballard has positions in Advanced Micro Devices, Nvidia and Tesla. The Motley Fool has positions in and recommends Advanced Micro Devices, Nvidia and Tesla. The Motley Fool has a disclosure policy.
Nvidia stock is up 149% this year. Here are 2 stocks that could outperform the rest of 2024. was originally published by The Motley Fool