nVidia compared to SMCI

Given the better rating, we believe Super Micro Computer shares (NASDAQ: SMCI) is a better choice compared to its AI competitor, Nvidia shares for the next three years. NVDA stock trades at 26 times sales, compared to 2 times SMCI's share price. We believe this gap in their valuation will narrow in favor of Super Micro Computer, as the company is more cheaply valued and has the potential for future revenue growth. The comparison is not negligible yet, and in the following sections, we discuss why we believe SMCI will outperform NVDA over the next three years. We compare a number of factors, such as historical revenue growth, share price yield, and valuation.

1. Returns for SMCI shares were better than for NVDA

NVDA stock has seen strong gains of 710% from $13 in early January 2021 to around $105 now, while the S&P 500 has gained about 45% over that roughly 4-year period. In comparison, SMCI stock has done even better, rising 1,185% from $30 in early January 2021 to around $385 now.

Admirably, SMCI is one of the few stocks that has outperformed the broader market over the past 4 years. The stock's returns were 39% in 2021, 87% in 2022, and 246% in 2023. In comparison, the S&P 500's returns were 27% in 2021, -19% in 2022, and 24% in 2023. Looking at NVDA, it delivered returns of 126% in 2021, -50% in 2022, and 239% in 2023. – suggesting that NVDA lagged the S&P in 2022.

SMCI was an exception, consistently beats the S&P 500 – in good times and bad – has been difficult for individual stocks in recent years; even for heavyweights in the technology sector, including mega-cap stars like GOOG, TSLA and MSFT. In contrast, the Trefis High Quality Portfolio with a collection of 30 stocks outperformed the S&P 500 every year in the same period. Why is that? As a group, the HQ portfolio stocks delivered better returns with less risk compared to the benchmark index; it was less of a rollercoaster ride, as evidenced by the HQ portfolio's performance metrics.

2. Super Micro’s revenue growth was better

Nvidia recorded an average annual revenue increase of 54% from $16.7 billion in FY21 to $61 billion in FY24. In comparison, Super Micro’s revenues grew by an average of 61% from $3.56 billion to $14.9 billion during this period. Nvidia revenue comparison Dashboards provide more insight into Nvidia’s revenue.

Nvidia has seen rapid revenue growth driven by demand for its high-end graphics processing units (GPUs), which have emerged as the de facto silicon for running artificial intelligence applications. Nvidia's chips are considered the gold standard in the space, and the company has also invested in building a software ecosystem around its products to potentially better retain its customers. In addition, AI models are becoming increasingly multimodal, moving from pure text processing to working with voice, images, video, and 3D, requiring greater processing power and therefore higher GPU demand. However, competition is increasing, with other players like AMD and Intel doubling down on their commitment to the space, and major tech giants like Google and Amazon – which happen to be some of Nvidia's biggest customers – also developing their own AI silicon. While consensus estimates suggest the company will grow its revenue by over 120% this year, growth rates could slow significantly in the coming years. Read our analysis of how Nvidia stock could crash to $40. We also present a positive scenario of how Nvidia stock could rise to $300.

Super Micro Computer is a data center solutions provider that sells server systems, server boards, storage, networking solutions, management software, and installation and maintenance services. Data center spending has surged as technology companies scramble to boost their AI and accelerated computing capabilities. Super Micro has doubled down on its efforts in this area by introducing servers optimized for training large language models and AI workloads. According to Susquehanna, capital spending by leading cloud computing providers is expected to grow 55% year-on-year in 2024. Super Micro's customers are also likely to opt for more premium products. For example, the company estimates that the expensive liquid cooling systems for servers, which were relatively rare in the pre-AI era, will be installed in 30% of the server racks it ships next year. The company is also steadily increasing its production capacity with a new facility in Malaysia that can produce over 5,000 racks of server kits each month. Consensus estimates suggest that the company will increase its revenue by approximately 89% in fiscal 2025.

3. Nvidia is more profitable

Nvidia’s operating margin increased from 35% in 2020 to 54% in fiscal year 2024, while Super Micro Computer’s operating margin of around 3% To 8.5% during the same period. While Nvidia's margins were much better, SMCI also saw strong margin growth thanks to its excellent revenue growth rates in recent years.

4. Nvidia performs better in terms of financial risk

In terms of financial risk, Nvidia’s 0.4% The share of debt in market capitalization is significantly below the 10% metric Super Micro Computer, while its 1.5% The cash share of market capitalization is below 7.5% for the latter. This implies that Nvidia has a better debt position, although Super Micro has a better cash cushion. Overall, it is probably safe to assume that Nvidia's financial risk is somewhat lower than Super Micro's, although Super Micro is not exactly in a vulnerable position given its healthy cash cushion.

5. The web of everything

We see that Super Micro has historically posted better revenue growth, margin expansion, and more cash cushion. On the other hand, Nvidia has a cheaper debt position and is expected to grow faster than Super Micro this year, according to consensus estimates. Now, looking at the outlook and valuation, we believe Super Micro is the better pick of the two. At current levels, Nvidia stock is trading at 26 times sales, compared to the average P/S ratio of the past three years of 20. In comparison, Super Micro stock is trading at 2 times sales, compared to the stock's average P/S ratio of 1.4 over the past three years. Overall, we think the risk-reward ratio appears more favorable for Super Micro, making it the better pick of the two.

Although SMCI may surpass NVDA in the next few years, it is helpful to see how Nvidia's colleagues Comparisons of important key figures. You can find further valuable comparisons for companies in various industries at Comparisons with other providers.

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