Connect with us

Hi, what are you looking for?

Economy

Surprise! The Top Year-to-Date Performer In the S&P 500 Isn’t Nvidia. Can This Company Keep It Up?

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 (SMCI -2.21%), 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.

This post appeared first on fool.com

You May Also Like

Investing

Newmont (NYSE: NEM) reported mixed financial results even as the price of gold approached its all-time high. In all, the company’s earnings per share...

Investing

Fisker (NYSE: FSR) stock price has been one of the best-performing electric vehicle (EV) stocks this week even as Tesla slumped. The shares jumped...

Investing

NatWest (LON: NWG) share price rose sharply, helped by the strong results from Barclays. The stock jumped to a high of 274.8p, which was...

Investing

The Fox Corporation (NASDAQ: FOX) stock price has been under pressure as investors come to terms with the abrupt firing of Tucker Carlson. The...




Disclaimer: Oldamericanbroker.com, its managers, its employees, and assigns (collectively “The Company”) do not make any guarantee or warranty about what is advertised above. Information provided by this website is for research purposes only and should not be considered as personalized financial advice. The Company is not affiliated with, nor does it receive compensation from, any specific security. The Company is not registered or licensed by any governing body in any jurisdiction to give investing advice or provide investment recommendation. Any investments recommended here should be taken into consideration only after consulting with your investment advisor and after reviewing the prospectus or financial statements of the-company.


Copyright © 2024 Oldamericanbroker.com