Super microcomputerThe company’s stock price rose more than 30% on November 19 after it appointed a new independent auditor and filed a compliance plan with Nasdaq to avoid a possible delisting. These announcements addressed two pressing issues: the departure of accountant Ernst & Young in October and a delayed filing of the 10-K report, which could lead to the stock being delisted.
But even after that rally, Supermicro’s stock remains 76% below its all-time high in March. The server manufacturer’s shares remain under pressure on concerns about declining gross margins and competition from larger server makers Dell Technologies And Hewlett Packard Enterpriseand disturbing allegations of inflated earnings from a prolific short seller. The delayed annual report and loss of Ernst & Young seemed to support this bearish thesis, and the Department of Justice (DOJ) is reportedly preparing to investigate Supermicro’s activities.
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Supermicro’s shares look dirt cheap at 8 times forward earnings, but will likely trade at that discount until the accounting and regulatory issues are fully resolved. So instead of betting on Supermicro’s long-term turnaround, investors would probably be better off with these two millionaire blue chip AI stocks: Microsoft (NASDAQ: MSFT) And Broadcom(NASDAQ:AVGO).
Microsoft generated a total return of over 900% over the past decade. This rally, driven primarily by the explosive growth of the cloud business, is said to have turned a $100,000 investment into over $1 million.
Microsoft turned into a growth stock again after Satya Nadella, who became CEO in 2014, pushed the company to transform its desktop-based software into cloud-based services and mobile apps. It also made Azure the second largest cloud infrastructure platform in the world and expanded its hardware and gaming businesses.
Over the past five years, Microsoft has ramped up its investments in OpenAI, the maker of ChatGPT, and integrated the startup’s generative AI tools into its own search and cloud services. That foresight has helped it lock more businesses and consumers into its cloud ecosystem and gain a first-mover advantage over Alphabet‘s Google and other tech giants in the emerging generative AI market.
In fiscal 2024 (which ended in June), Microsoft’s AI-driven transformation increased its total cloud revenue by 23% to $135 billion – representing 55% of revenue. From fiscal 2024 to fiscal 2027, analysts expect revenue and earnings per share (EPS) to grow at a compound annual growth rate (CAGR) of 14% and 15%, respectively. The stock still seems reasonably valued at 28 times next year’s earnings, and it will likely remain a top player in the AI ​​market for years to come.
Broadcom, which was known as Avago before acquiring the original Broadcom in 2016, has delivered a total return of 2,300% over the past decade. That rally would have turned a $50,000 investment into $1.2 million.
Broadcom’s semiconductor division sells a wide range of chips for the mobile, wireless, networking, data storage and industrial markets. But in recent years the company has built a massive infrastructure software business through the acquisitions of CA Technologies, Symantec’s enterprise security division, and cloud software giant VMware.
Broadcom’s chip manufacturing and software businesses are both growing. But over the past two years, sales of networking and optical chips for the AI-oriented data center market have skyrocketed as more companies upgraded their infrastructure. For fiscal 2024 (which ended in October), it expects sales of AI-oriented chips to roughly triple to $12 billion, or nearly a quarter of its expected full-year revenue. That rapid growth should offset slower sales of non-AI chips and infrastructure software, both of which are more sensitive to macroeconomic headwinds.
From fiscal 2024 to fiscal 2026, analysts expect Broadcom’s revenue to grow at a CAGR of 15%, while earnings per share will rise at a CAGR of 124%. That profit growth should be driven by robust sales of AI chips and the expansion of its higher-margin software business. The stock may seem a bit pricey at 42 times forward earnings, but its track record of smart acquisitions, high exposure to the AI ​​market and robust growth could justify that higher valuation.
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Suzanne Frey, a director at Alphabet, is a member of The Motley Fool’s board of directors. Leo Sun has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Alphabet and Microsoft. The Motley Fool recommends Broadcom and Nasdaq and recommends the following options: long January 2026 $395 calls to Microsoft and short January 2026 $405 calls to Microsoft. The Motley Fool has a disclosure policy.
Should You Forget Super Micro Computer and Buy These 2 Millionaire-Maker AI Stocks Instead? was originally published by The Motley Fool
