Perhaps no company has benefited more from the boom in generative artificial intelligence (AI) than Nvidia. Its stock price has risen more than 200% over the past 12 months as customers hoard its hardware to run these complex applications. But investors don’t have to put all their eggs in one basket. Let’s discuss why Advanced Micro Devices (AMD -1.01%) and Super Micro Computer (SMCI 1.89%) could also be excellent ways to bet on the opportunity.
Advanced Micro Devices
Nvidia currently dominates the industry for AI-capable graphics processing units (GPUs), with a market share of over 80%. However, with high prices and steadily growing demand, the opportunity is ripe for competition. In 2024 and beyond, AMD hopes to claim a slice of this valuable niche, potentially supercharging its long-term growth. CEO Lisa Su believes the $45 billion market for AI chips could rise to $400 billion by 2027. And her company has released its new MI300 family of GPUs designed to compete with Nvidia’s flagship H100 for training and running AI applications. Management expects the products to add around $2 billion to 2024 sales. But the figure could rise to $20 billion in three years if the company maintains a share of just 5% (assuming Su’s prediction of a $400 billion market comes to fruition). With a forward price-to-earnings (P/E) multiple of 48, AMD’s valuation prices in a lot of growth expectations, so the company doesn’t have much room for error. However, the unprecedented rise of AI hardware demand suggests it can meet expectations and continue outperforming.
Super Micro Computer
With shares already soaring by 67% in 2024, Super Micro Computer looks set to continue the rally that has sent its stock up fivefold in just 12 months. While the company is no longer as cheap as it was at the start of last year, it can benefit from the success of its hardware suppliers and its own innovations in data center modernization.
Super Micro plays an important role in the data center chip industry by turning hardware made by companies like Nvidia into consumer-ready computers that enterprises can use for data storage and running and training AI applications. The surging demand for AI chips has lifted its fortunes, with management raising fiscal second-quarter guidance from a best-case of $2.9 billion to between $3.6 billion and $3.65 billion.
Granted, Super Micro’s business model makes it uncomfortably dependent on hardware supplies allocated by its partners. But as data center operations become more demanding, the company could also generate increasing revenue from its liquid cooling systems, designed to help clients prevent heat from damaging their hardware. Analysts at Rosenblatt Securities believe this business may have played a role in Super Micro’s guidance increase. And over time, it could give the company some much-needed diversification. With a forward P/E of 25, Super Micro stock is cheaper than the Nasdaq-100 index of 30, making it a relatively affordable way for investors to bet on this opportunity.
Which stock is best for you?
Advanced Micro Devices and Super Micro Computer are great ways to gain exposure to the AI hardware opportunity. But their stocks suit different investment strategies. AMD might offer more growth potential at a higher price tag, while Super Micro is a more value-oriented pick.
Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices. The Motley Fool recommends Super Micro Computer. The Motley Fool has a disclosure policy.
