Nvidia (NASDAQ: NVDA) and Super Micro Computer (NASDAQ: SMCI) have emerged as standout contenders in the artificial intelligence (AI) stock arena. Nvidia, the esteemed giant in high-end data center GPUs for machine learning and AI applications, is pitted against Super Micro Computer, recognized as Supermicro, a swiftly advancing provider of specialized AI servers predominantly powered by Nvidia’s GPUs.
While both Nvidia and Supermicro have witnessed significant stock growth, exceeding 600% in the past two years, fueled by the expanding generative AI market prompting data center upgrades with cutting-edge AI components, the critical question lingers: Are these soaring AI stocks still worth investors’ pursuit?
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The Unstoppable Force: Nvidia
Once a predominant player in gaming GPUs for PCs, Nvidia witnessed a transformative shift with the AI market’s rapid surge. This evolution propelled its data center unit, now constituting 87% of its revenue in the latest quarter, to become its leading and swiftest growing segment.
Nvidia’s revenue spiked by 126% in fiscal 2024, concluding in January 2024, and surged by an outstanding 171% year over year in the first half of fiscal 2025. Projections for the full year anticipate a remarkable 123% revenue growth and a staggering 137% surge in adjusted earnings per share (EPS).
Despite these phenomenal growth rates, Nvidia confronts challenges on multiple fronts with mounting competition from AMD, issues in Blackwell GPU production, and the emergence of in-house AI chip development from key clients such as Microsoft, OpenAI, and Alphabet’s Google.
While analysts foresee a 41% growth in revenue and adjusted EPS for fiscal 2026, concerns loom over potential deceleration in Nvidia’s data center chip sales and gross margin due to issues like the Blackwell yield problems.
Supermicro’s Rocky Terrain
Supermicro, positioned as an underdog in the server domain, established a niche by crafting high-performance liquid-cooled servers. The partnership with Nvidia, which supplied GPUs for Supermicro’s high-caliber AI servers, proved fruitful.
Despite a commendable revenue upsurge of 37% in fiscal 2023 and a robust 110% growth in fiscal 2024, Supermicro faced headwinds in the fourth quarter of fiscal 2024. The shrinking gross margin, supply chain hurdles, increased spending on liquid-cooling technologies, and escalating pricing pressure from competitors like Dell Technologies and Hewlett-Packard Enterprise in the AI server market exacerbated the challenges.
Recent turmoil unfolded when short seller Hindenburg Research alleged Supermicro of inflating revenues through manipulative sales tactics, raising accounting concerns reminiscent of its delisting episode from Nasdaq in 2018. Consequently, Supermicro postponed its 10-K filing and acknowledged the need for additional evaluation of its financial controls.
While analysts anticipate notable revenue and earnings ascents for fiscal 2025 and 2026, these projections may be overshadowed by recent adversities. Additionally, Supermicro’s reduced valuation multiple of just 13 times forward earnings may not be sufficient to deter potential bearish sentiments in light of recent setbacks.
Landing the Investment: Nvidia Reigns Supreme
Amidst the fray, Nvidia stands as the cornerstone of the flourishing AI market, fortified by its dominant market presence and robust pricing leverage. Conversely, Supermicro, dwarfed by industry giants like Dell and HPE, grapples with uncertainties surrounding its postponed filing and lingering accusations from Hindenburg Research.
While Supermicro once harbored aspirations of outpacing Nvidia, recent setbacks including margin contraction, allegations from Hindenburg, and delayed filings taint its outlook. Hence, the prudent choice veers towards Nvidia for a steadfast AI investment.
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