AI Stock Showdown: Nvidia vs. Super Micro Computer vs. Intel

Better AI Stock: Nvidia vs. Super Micro Computer | The Motley Fool

Nvidia (NVDA -1.66%) and Super Micro Computer (SMCI -4.14%) have been two of the market's hottest artificial intelligence (AI) stocks. Nvidia is the world's largest producer of high-end data center GPUs for processing machine learning and AI tasks. Super Micro Computer, more commonly known as Supermicro, is a rapidly growing supplier of dedicated AI servers. Most of those systems are powered by Nvidia's GPUs. Over the past two years, Nvidia's stock surged more than 640% as Supermicro's stock rallied nearly 550%. Both stocks soared as the rapid expansion of the generative AI market drove more companies to upgrade their data centers with new AI chips and servers. But should investors chase either of these high-flying AI stocks right now? Nvidia once generated most of its revenue from gaming GPUs for PCs. But the rapid expansion of the AI market turned its data center unit, which accounted for 87% of its top line in its latest quarter, into its largest and fastest-growing business. That's why Nvidia's revenue surged 126% in fiscal 2024, which ended in January 2024, and 171% year over year in the first half of fiscal 2025. Analysts expect its revenue and adjusted earnings per share (EPS) to grow 123% and 137%, respectively, for the full year. Those growth rates are incredible, but Nvidia still faces some unpredictable challenges. It controlled 98% of the data center GPU market last year, according to TechInsights, but it faces stiff competition from AMD's cheaper GPUs. Nvidia has also been struggling to ramp up its production of its latest Blackwell GPUs, and several of its top AI customers -- including Microsoft, OpenAI, and Alphabet's Google -- have been developing their own first-party AI accelerator chips. Nvidia's red-hot data center chip sales are also gradually cooling off. Its 16% sequential sales growth in the second quarter of fiscal 2025 actually marked a deceleration from its 23% growth in the first quarter and 27% growth in the fourth quarter of fiscal 2024. Its yield issues with Blackwell also reduced its gross margin sequentially in the second quarter. Analysts expect Nvidia's revenue and adjusted EPS to both grow 41% in fiscal 2026. Its stock doesn't look that pricey at 44 times forward earnings, but it might shed its premium valuation if companies start to scrutinize and rein in their AI spending. Supermicro is an underdog in the server market, but it carved out a niche by producing high-performance liquid-cooled servers. That made it an ideal partner for Nvidia, which provided it with a steady supply of GPUs for its high-end AI servers. Supermicro's revenue rose 37% in fiscal 2023, which ended last June, and surged 110% in fiscal 2024. Its soaring sales of AI servers, which now account for over half of its top line, offset its slower sales of traditional servers. Bank of America expects the company to expand its share of the AI server market from 10% to 17% over the next three years. But in the fourth quarter of fiscal 2024, Supermicro's gross margin shrank sequentially and year over year as it grappled with supply chain issues, ramped up its spending on new liquid-cooling technologies, and faced more pricing pressure from Dell Technologies and Hewlett-Packard Enterprise in the AI server market. On Aug. 27, prolific short seller Hindenburg Research accused Supermicro of stuffing its sales channels with partial orders of defective products and inflating its revenues. It also said Supermicro hadn't resolved all of the accounting issues that previously caused its stock to be delisted from the Nasdaq in 2018. A day later, Supermicro postponed its 10-K filing for fiscal 2024 and said it needed "additional time" to assess its "internal controls over financial reporting." Analysts still expect Supermicro's revenue and earnings to grow 90% and 58%, respectively, in fiscal 2025 as it ramps up its shipments of AI servers. For fiscal 2026, they expect its revenue and earnings to rise 19% and 30%, respectively. Those growth rates seem impressive for a stock that trades at just 13 times forward earnings, but its recent problems could drive away the bulls and compress its valuations for the foreseeable future. Nvidia remains the linchpin of the booming AI market, and its market dominance still gives it plenty of pricing power. We can't say the same about Supermicro, which is a lot smaller than Dell and HPE. Supermicro's delayed 10-K filing could also contain some nasty surprises that provide more fuel for Hindenburg's bearish thesis against the company. I once thought Supermicro had a shot at outperforming Nvidia this year, but its shrinking gross margin, Hindenburg's allegations, and its postponed 10-K filing raise too many red flags. That's why I'd stick with Nvidia instead of Supermicro as my top AI play.

Better Artificial Intelligence Stock: Nvidia vs. Intel | The Motley Fool

Chip companies have been the primary beneficiaries of a recent artificial intelligence (AI) boom. The industry has exploded since November 2022, when OpenAI launched ChatGPT, an advanced chatbot made possible by high-performance chips like graphics processing units (GPUs). As a leader in GPUs, Nvidia (NVDA -1.66%) has massively profited from increased demand for the chips. As I write this, its stock has climbed 642% since the start of last year, alongside soaring earnings as it achieved a majority market share in AI GPUs. Nvidia could have a lot more to offer investors as the industry develops. However, there is also an argument to be made for investing in a less established AI chip stock like Intel (INTC -3.33%), which could have room to run. The company has had a challenging few years, with its share price down 60% since 2021. However, Intel is making moves that could secure a powerful role in AI over the long term. Let's examine these tech giants and determine whether Nvidia or Intel is the better stock to invest in the AI market. At the start of 2023, Nvidia's market cap was $359 billion and it is now at just under $3 trillion. The company has enjoyed significant gains as its GPUs have become the go-to for AI developers worldwide. Nvidia released its second-quarter fiscal 2025 earnings last week, with revenue increasing by 122% year over year. The period beat analysts' sales expectations by over $1 billion, while earnings per share outperformed by $0.04. Overall, it was an immensely positive quarter for Nvidia, which saw double- or triple-digit growth in each of its five segments. Its data center division, on its own, delivered revenue growth of 154% thanks to increased AI GPU sales. Yet glowing quarterly results haven't done much to rally investors. Nvidia's stock has dropped since the earnings release on Aug. 28. Geopolitical concerns, economic uncertainty, doubts about Nvidia's valuation, and worry about delays in the launch of Nvidia's Blackwell processors have played a part in causing investors to withdraw. However, the company's nearly unrivaled dominance in AI and consistent earnings growth will likely make this dip temporary. Meanwhile, now could be an excellent opportunity to buy the stock at one of its best-valued positions in months. Nvidia's free cash flow is up 167% over the last 12 months to $47 billion, massively outperforming its competitors. Nvidia has the brand power and financial resources to retain its dominance in AI and keep pushing its technology forward, making it one of the most reliable ways to invest in the industry. After years of declining earnings and market share in the chip industry, Intel is a little worse for wear. The company's quarterly revenue and operating income are down 33% and 119% over the past three years, with free cash flow tumbling 162%. As a result, Intel is planting seeds throughout tech in an effort to reinvent itself. In AI, the chipmaker has revealed multiple new AI-enabled chips to better compete with Nvidia and AMD. Meanwhile, Intel has made a considerable push into manufacturing, hoping to eventually become the world's biggest AI chip fabricator. However, these ventures haven't come cheap, hurting Intel's financial position and profitability. Intel's stock popped 9% on Aug. 30 when a Bloomberg report said the company was in early discussions to potentially split its chip design and manufacturing divisions. The move could give both sides a better opportunity to thrive, with Intel's recent earnings indicating it may have bitten off more than it could chew. Intel was once a king in the chip market, with leading market shares in processors and manufacturing. However, it has struggled to keep up with competitors over the last decade. Recently announced chips have shown promising progress, and coming Ohio factories could lead to a lucrative role in AI chip production. However, it could take decades for Intel to deliver significant stock growth. Nvidia and Intel are at wildly different stages of their journeys into AI. Nvidia has secured a spot at the top, with an estimated market share in AI GPUs of maybe up to 95%. Meanwhile, Intel has yet to see significant returns on its hefty investment in the industry. Intel may come back strong over the long term, but its future is too uncertain for me to recommend its stock. Alternatively, Nvidia has one of the most established positions in AI and the cash to continue thriving in the industry. Moreover, the chart below shows that despite Intel's plunging stock price in recent years, it still doesn't offer much value. Nvidia's lower forward price-to-earnings ratio (P/E) indicates its stock is trading at a better value than Intel's. Meanwhile, Nvidia's far higher free cash flow highlights the reliability of its business, making its stock a no-brainer way to invest in AI right now.