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If investors could turn back the clock and return to the beginning of 2023, undoubtedly many would load up on shares of Nvidia (NASDAQ: NVDA). Nvidia's stock rose nearly 240% on the back of increased GPU (graphics processing unit) demand, fueled by the artificial intelligence (AI) arms race. While the stock has put up unbelievable growth, it has also become quite expensive.
But, a much cheaper alternative to Nvidia is benefiting from the same trend: Super Micro Computer (NASDAQ: SMCI). Often called Supermicro, it also had a phenomenal 2023, with the stock up nearly 250%, outperforming Nvidia. However, it's still quite cheap compared to Nvidia, making it a great way to invest in AI if you've missed out on Nvidia.
Supermicro competes in a crowded industry
While Nvidia creates the GPUs needed to process the calculations for arduous workloads, companies can't just buy one, plug it into a computer, and expect it to be perfect. Instead, anyone who wants a supercomputer purchases multiple GPUs and places them in a data center server. Getting the architecture in these servers right is crucial for squeezing out top performance, and Supermicro specializes in this area.
Supermicro works closely with Nvidia to ensure its architecture is optimizing performance. Supermicro also has highly configurable servers available for purchase that can be tailored to game development, generative AI, engineering simulations, or drug discovery. However, Supermicro isn't the only company in this industry, as other sizable competitors like IBM and Hewlett Packard are also attempting to capitalize on the boom caused by AI interest.
Still, Supermicro is a pure play in this space, giving investors the best chance to capitalize on this move.
But if you expect another 250% stock movement in 2023, you must dampen those expectations.
Supermicro isn't growing as fast as Nvidia, but is far cheaper
While Supermicro is growing, it's not at the levels Nvidia has experienced.
However, management has an ambitious goal for Supermicro to reach more than $20 billion in annual revenue, nearly tripling its current trailing-12-month total. It's well on its way to achieving that, as management is guiding for $10.5 billion in FY 2024 revenue (ending June 30).
Still, this isn't even close to Nvidia's growth rate, even if it is respectable.
So why did Supermicro's stock do so well in 2023? It had to deal with its valuation.
Supermicro entered 2023 at nearly an all-time low valuation of 6.4 times earnings. This was far below its decade-long average, setting the stage for a strong rebound.