Nvidia (NASDAQ: NVDA) is one of the best stocks to own in the artificial intelligence (AI) race so far. The company’s revenue has tripled in recent quarters compared to last year, sending the stock up 149% in the first half of 2024.
At these high stock prices, Nvidia’s valuation seems stretched. The stock’s price-to-earnings ratio was less than 30 at the start of the year, but it now trades at 45 times this year’s consensus estimate. Nvidia could see enough growth to push the stock higher, but there’s also a chance that near-term demand is already baked into the stock price, which could limit the stock’s gains through the end of the year.
The good news is that Nvidia isn’t the only AI stock beating the market. Nvidia has benefited from tight AI chip supply, but as supply improves, that could boost demand for AI servers, and its shares trade at more reasonable valuations, which could deliver superior returns in the near term.
Here are two AI server stocks that could outperform Nvidia for the rest of the year.
1. Supermicrocomputer
Super microcomputer (NASDAQ: SMCI) The stock has outperformed Nvidia in 2024, up 188%. It sells rack-mount systems for data centers. Because of its exposure to the broader demand for AI chips, Supermicro (as it’s also known) is a solid alternative to Nvidia.
Supermicro sells into several markets, including 5G connectivity and edge computing. But ask for its plug-and-play rack systems with data center chips from Nvidia and Advanced micro devices are currently the main drivers of growth. Revenue rose 200% year over year last quarter, reflecting Nvidia’s growth.
Server system sales are a competitive market, but it’s encouraging to see Supermicro growing faster than the industry. It maintains close relationships with suppliers such as Nvidia, which helps the company deliver innovative solutions before competitors do. The company is currently pushing the adoption of direct liquid cooling solutions, which it has been developing for years, to better manage the heat generated by AI computing systems.
If it continues to outperform the rest of the server industry, the stock could have significant upside potential. Wall Street analysts expect Supermicro’s earnings per share to grow at an annual rate of 46% over the next few years, which is higher than the 33% estimate for Nvidia.
Additionally, Supermicro stock also offers better value than Nvidia. The current forward price-to-earnings (P/E) ratio is 35 — lower than the forward P/E multiple of 45 for Nvidia. Investors get more earnings growth at a lower price with Supermicro — a recipe for superior returns.
2. Dell Technologies
Dell Technologies (NYSE: DELL) Shares are up 80% so far this year, but the company’s stock could outperform Nvidia’s for the rest of the year due to rising demand for the company’s AI servers.
Dell generates the majority of its revenue from client solutions, including PC sales, but infrastructure solutions is its fastest-growing business, with revenue growing 22% year over year in the last quarter. AI server shipments have more than doubled from the same period last year. In the past year, AI server revenue has exploded from zero to $1.7 billion, and it’s just getting started.
AI server sales are weighing on Dell’s gross margin, but expected robust revenue growth in the AI ​​server sector could support substantial earnings growth, helping the stock move higher in the coming years.
The company’s AI server backlog grew about 31% to $3.8 billion in the quarter, a rise that could reflect new business Teslaaccording to Evercore ISI analyst Amit Daryanani. Dell appears to be in a strong competitive position, as the analyst believes that Dell has won a larger number of server business from the electric vehicle maker than Supermicro.
Wall Street analysts predict that earnings will grow 12% per year over the next few years, and these estimates could rise even further as Dell’s PC business recovers. The stock’s forward price-to-earnings ratio of 18 looks attractive, given the potential for accelerating earnings growth, and could deliver superior returns.
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John Ballard has positions in Advanced Micro Devices, Nvidia and Tesla. The Motley Fool has positions in and recommends Advanced Micro Devices, Nvidia and Tesla. The Motley Fool has a disclosure policy.
Nvidia shares are up 149% this year. Here are 2 stocks that could outperform for the rest of 2024. was originally published by The Motley Fool
