This year has been an incredible year for many companies, especially technology players active in the field of artificial intelligence (AI). They have posted gains in all three indexes, from the S&P500 and the Nasdaq to the Dow Jones Industrial Average. In fact, new Dow member Nvidia is on track for top performance in that index this year thanks to its AI strengths.
Investors have rushed into AI stocks because the technology promises to be revolutionary and will mark history, just like the development of the telephone or the Internet. Analysts expect the current $200 billion AI market to cross the $1 trillion mark by the end of the decade, allowing companies and investors entering this space now to make big profits.
Yet not every AI company has reaped the rewards in recent times. Super microcomputer (NASDAQ: SMCI) And Intel (NASDAQ: INTC) both have faced challenges in recent months, and this has weighed on their stock performance. Which is a better recovery story buy for 2025? Let’s find out.
Supermicro shares soared higher in the first half of the year, rising 188%. The company makes equipment such as servers and workstations, and demand from AI customers has skyrocketed. This has translated into triple-digit quarterly revenue growth.
But several news reports hurt Supermicro in the second half of the year. First, a brief report from Hindenburg Research claimed there were problems at the company. Subsequently, Supermicro postponed the filing of its 10-K annual report and later the filing of its 10-Q quarterly report. Meanwhile, the company’s accountant resigned, and the late financial filings put it at risk of a delisting from the Nasdaq stock exchange.
The stock fell 67% from the Hindenburg report to its lowest level in mid-November. But better news has emerged in recent weeks. Supermicro found a new auditor and submitted a plan to Nasdaq to regain compliance. Nasdaq has since granted an extension until February 25, and Supermicro expects to file by then.
So the worst could be behind Supermicro, setting it up for a potential recovery in 2025.
Intel dominates the market for central processing units (CPUs), the main processors that power most computers. But a few issues have weighed heavily on this tech giant. First, it is losing market share Advanced micro devices in the desktop CPU market. Second, Intel has failed to get into the AI market early, and while it has come out with compelling products in recent quarters, it has struggled to catch up with the leaders.
In addition, some investors worried about the investments involved in Intel’s decision to become a chipmaker and offer foundry services not only to itself but also to rivals. Spending has had an impact on the company’s free cash flow in recent years.
Intel’s announcement of a $10 billion cost-cutting program, including a plan to cut 15% of its workforce, did not reassure investors. When it was announced in August, the stock fell 26% in one trading session.
Intel recently ousted its CEO Pat Gelsinger and appointed two executives to share the role as the company searches for a permanent replacement.
Taking all this into account, Intel is now in a major transition period, meaning major changes could happen in 2025 and beyond.
Supermicro appears to be on the right path to recovery, but one key element is missing, and that is its audited financial reports. While Supermicro says it does not expect any adjustments, it is important that investors look at the company’s latest financial performance before making any investment decisions. And that’s why I would keep Supermicro on the watchlist for now and wait to buy the stock.
As for Intel, it’s impossible to know at this point what direction the company will take because the interim leaders have just taken over – and we don’t yet know if they’ll make any major moves or maintain the status quo until there’s a new CEO arrives. . Will Intel continue with its plans to become a leading chipmaker? That decision alone, whether the answer is “yes” or “no,” could yield completely different outcomes for the company. Without understanding Intel’s strategy, it is impossible to make an informed investment decision.
So now I’d say keep an eye on both companies in the new year. But right now it’s too early to invest in either, no matter how interesting their valuations may look. The message here is that even if a struggling company has reached an inflection point, it’s still a good idea to proceed cautiously and not rush into any recovery story until we have an idea of what lies ahead .
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*Stock Advisor returns December 9, 2024
Adria Cimino has no positions in the stocks mentioned. The Motley Fool holds positions in and recommends Advanced Micro Devices, Intel, and Nvidia. The Motley Fool recommends the following options: Short February 2025 $27 calls on Intel. The Motley Fool has a disclosure policy.
Better Recovery Story Buy for 2025: Super Micro Computer vs. Intel was originally published by The Motley Fool
