Two artificial intelligence (AI) stocks have taken the lead S&P 500 (SNP INDEX: ^GSPC) higher this year. Semiconductor company Nvidia (NASDAQ: NVDA) and server manufacturer Supermicrocomputer (NASDAQ: SMCI) saw their share prices rise by 159% and 119% respectively.
Both companies recently announced 10-for-1 stock splits to make shares more affordable. Nvidia completed the split in June, and Super Micro Computer will follow suit in late September. But Wall Street analysts expect both stocks to rise even further over the next 12 months.
Nvidia’s median target of $140 per share implies a 10% upside from the current share price of $127. And Super Micro’s median target of $693 per share implies a 16% upside from the current share price of $600. But I think Super Micro shares will rise 100% over the next year, with a split-adjusted share price of $120 by August 2025.
That said, patient investors should consider buying both stocks.
Nvidia: Delayed Blackwell shipments create uncertainty ahead of earnings
Nvidia reported stellar financial results in the first quarter, beating estimates for both the top and bottom lines. Revenue rose 262% to $26 billion and non-GAAP net income climbed 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.
However, shipments of Nvidia’s Blackwell GPUs will be delayed by three months due to a design flaw that was “discovered unusually late in the manufacturing process,” according to The Information. Blackwell chips can run training and inference workloads faster than the previous Hopper generation, which should further solidify Nvidia’s leadership in AI chips.
Following the report, Nvidia shares fell to their lowest level since May, but the stock has since recovered, suggesting the market sees little cause for concern. Deutsche Bank Analyst Ross Seymore doubts that Blackwell’s delayed launch will have a material impact on Nvidia’s near-term prospects or the company’s ability to meet Wall Street expectations.
Investors should proceed with caution, however. Management has yet to address the issue, so it’s an unknown that will require explanation when the company reports earnings on August 28. Expectations are already high, as Nvidia has beaten Wall Street estimates in recent quarters, so bad news could send the stock plummeting.
Looking ahead, Wall Street expects Nvidia to grow earnings by 37% per year over the next three years. That makes its current valuation of 75x earnings a bit pricey, but not absurdly expensive. Patient investors could buy a very small position today if they’re comfortable with the possibility of a post-earnings decline. In that scenario, investors should consider buying a slightly larger position on the pullback.
Super Micro Computer: AI Server Market Leader Expected to Gain Market Share
Super Micro Computer designs servers and storage solutions for cloud and private data centers. In-house manufacturing capabilities and a unique building block approach to product development allow the company to quickly build servers using the latest chips from vendors such as Nvidia. As a result, Super Micro typically beats competitors to market by two to six months, according to CEO Charlies Liang.
This advantage has made Super Micro the market leader in artificial intelligence (AI) servers, and analysts expect the company to quickly gain market share. Bank of America Analysts expect Super Micro to account for 17% of AI server sales in 2026, up from 10% last year. KeyBanc’s Tom Blakely is more optimistic. He thinks Super Micro’s market share could surpass 20% this year. He also says the company “has competitive moats that should help it maintain or even expand that share in the coming years.”
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. However, gross margin fell 5.8 percentage points to 11.2% and non-GAAP net income rose just 78% to $6.25 per diluted share. Wall Street had expected non-GAAP earnings to rise 130% to $8.14 per diluted share.
The stock fell after the report, reflecting concerns that margins were falling as Super Micro lacks pricing power in an increasingly competitive market. But CEO Charles Liang attributed the margin crunch to the costs associated with direct liquid cooling (DLC) components. Moreover, he expects gross margin to normalize to between 14% and 17% by the end of fiscal 2025 (ending June 2025) as DLC servers ship in greater volumes.
Importantly, investments in DLC technology could cement Super Micro’s position as a market leader in AI servers. Liquid cooling is more cost-effective than traditional air cooling, so demand for DLC servers is expected to grow rapidly in the coming years as data centers are filled with powerful AI hardware that generates massive amounts of heat. Super Micro has positioned itself as an early leader in DLC technology.
Looking ahead, Super Micro’s fiscal 2025 guidance implies revenue growth between 74% and 101%. If the company hits the top end of that range, its stock could surge 100% without any change in its price-to-sales multiple. And the stock currently trades at 2.5 times sales, which is a discount to its trailing 12-month average of 3.3 times sales. As a result, I expect Super Micro stock to double by August 2025.
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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.
Prediction: 1 AI Stock With Stock Split To Buy Before It Soars 100% In The Next Year (Hint: Not Nvidia) was originally published by The Motley Fool
