Year so far, Nvidia (NASDAQ: NVDA) And Supermicrocomputer (NASDAQ: SMCI) are the best performing stocks in the Nasdaq 100 and two of the three best performing stocks in the S&P 500. Both companies have opted to split their stocks to make shares more affordable. Nvidia specifically completed a 10-for-1 stock split in June, and Supermicro has a 10-for-1 stock split scheduled for September.
Surprisingly, Wall Street remains bullish on both companies. Median price targets imply 21% upside for Nvidia and 22% upside for Supermicro, but some analysts see much bigger gains ahead.
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In June, Beth Kindig of the I/O Fund published an analysis in Forbes that values Nvidia at $10 trillion by 2030, echoing a prediction Jim Cramer made two years ago. That implies a 245% increase from the current market cap of $2.9 trillion.
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In April, Ananda Baruah at Loop Capital raised his 12-month price target on Supermicro to $1,500 per share, implying an upside of 165% from the current price of $567 per share. Hans Mosesmann at Rosenblatt set his price target at $1,300 per share, implying an upside of 129%.
Here’s what investors need to know about these artificial intelligence (AI) stocks.
1. Nvidia
Nvidia graphics processing units (GPUs) were originally designed to create stunning computer graphics for video games and 3D design applications. But the company turned its GPUs to data center accelerators when it launched its CUDA parallel computing platform in 2006. CUDA has evolved into a robust ecosystem of software tools that streamline the development of GPU-accelerated applications across disciplines, from computational chemistry to artificial intelligence.
Nvidia dominates the data center accelerator market, accounting for 98% of data center GPU shipments in 2023, according to semiconductor analysts at TechInsights. Nvidia also has more than 80% market share in AI processors.
That dominance is due in part to superior performance. Nvidia GPUs consistently outperform competing chips on the MLPerf benchmarks, tests that provide unbiased evaluations of AI systems in training and inference.
What really sets the company apart, however, is that it offers a full-stack computing solution, meaning it combines the hardware, software, and services that businesses need to build, deploy, and manage AI applications. I’m not just talking about GPUs and CUDA. Nvidia also provides additional data center hardware, such as networking equipment and central processing units (CPUs), and offers a comprehensive AI-as-a-service solution called DGX Cloud.
Nvidia reported better-than-expected financial results for the first quarter of fiscal 2025 (ended April 2024). Revenue increased 262% to $26 billion on strong momentum in the data center segment, and non-GAAP net income increased 461% to $6.12 per diluted share. “Our data center growth was fueled by strong and accelerating demand for generative AI training and inference on the Hopper platform,” said CEO Jensen Huang.
Wall Street expects Nvidia to grow adjusted earnings 52% annually through fiscal 2026 (ending January 2026). That consensus estimate makes the current valuation of 57.7 times adjusted earnings seem reasonable.
Investors interested in buying Nvidia stock should start with a small position today. If the stock price drops after the upcoming earnings report on August 28, consider using that opportunity to build a slightly larger position.
I think Nvidia can eventually become a $10 trillion company, but I doubt the company will reach that milestone by 2030.
2. Supermicrocomputer
Supermicro produces high-performance computing platforms, including storage solutions and servers optimized for intensive workloads such as data analytics and artificial intelligence. The company has a leading position in the AI server market, thanks to its modular approach to product design and in-house manufacturing capabilities.
Specifically, Supermicro makes “electronic ‘building blocks’ that can be assembled into servers in an almost endless number of combinations. Rivals offer customers a more limited menu,” he said. The Wall Street JournalThe company also conducts most of its research, development and assembly in facilities in Silicon Valley, which support the rapid rollout of servers running the latest products from vendors like Nvidia.
Supermicro reported mixed financial results in the fourth quarter of fiscal 2024 (ended June 30). Revenue rose 143% to $5.3 billion on record demand for AI infrastructure. But non-GAAP net income rose just 78% to $6.25 per diluted share as costs related to direct liquid cooling (DLC) components squeezed margins.
Wall Street had expected adjusted earnings growth of 130%. That miss sent the stock down 17% after the report.
However, management provided important context during the earnings call. While gross profit margin fell 5.8 percentage points to 11.2% in the fourth quarter, CFO David Weigand told analysts that figure should normalize to between 14% and 17% by the end of fiscal 2025 as DLC production capacity grows. Additionally, investments in DLC could help Supermicro gain market share in AI servers.
Liquid-cooled AI servers reduce data center power consumption. Demand for DLC solutions is expected to grow rapidly, accounting for at least 15% of all data center installations over the next two years, up from less than 1% in the past. Supermicro has become an early leader in DLC solutions, which could ultimately drive demand for its AI servers.
Wall Street expects Supermicro to grow adjusted earnings 41% annually through fiscal 2026. That makes its current valuation of 25.7 times adjusted earnings cheap. That said, the stock could still fall if Supermicro misses Wall Street’s earnings estimates in future quarters.
Investors willing to take that risk could buy a small position today, but not with the expectation of triple-digit gains over the next 12 months. It could happen, but anyone counting on that outcome will be disappointed.
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Trevor Jennewine has positions in Nvidia. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.
2 Stock-Split AI Stocks You Should Buy Before They Soar 165% and 245%, According to Certain Wall Street Analysts was originally published by The Motley Fool
