Finance
Nvidia shares are up 149% this year. Here are two stocks that could outperform for the rest of 2024.
Nvidia (NASDAQ: NVDA) has been one of the best stocks to own in the artificial intelligence (AI) race so far. The company’s revenue has tripled year over year in recent quarters, sending its stock up 149% in the first half of 2024.
At these high stock prices, Nvidia’s valuation appears stretched. The stock’s price-to-earnings ratio was less than 30 at the start of the year, but now trades at 45 times more than this year’s consensus estimate. Nvidia could see enough growth to push the stock higher, but there’s also a chance that near-term demand is already baked into the stock price, which could limit the stock’s gains through the end of the year.
The good news is that Nvidia isn’t the only AI stock beating the market. Nvidia has benefited from the tight supply of AI chips, but as supply improves it could boost demand for AI servers, and these companies’ shares are trading at more reasonable valuations, which could mean superior returns in the near term to assure.
Here are two AI server stocks that could outperform Nvidia for the rest of the year.
1. Supermicrocomputer
Super microcomputer (NASDAQ: SMCI) The stock has outperformed Nvidia in 2024, up 188%. It sells rack mounting systems for data centers. Because of its exposure to the broader demand for AI chips, Supermicro (as it is also known) is a solid alternative to Nvidia.
Supermicro sells in several markets, including 5G connectivity and edge computing. But the demand for its plug-and-play rack systems with data center chips from Nvidia and Advanced micro devices are currently the main drivers of growth. Revenue rose 200% year over year last quarter, reflecting Nvidia’s growth.
Selling server systems is a competitive market, but it’s encouraging to see Supermicro growing faster than the industry. It maintains close relationships with suppliers such as Nvidia, allowing the company to deliver innovative solutions ahead of the competition. It is currently encouraging the adoption of direct liquid cooling solutions, which it has been developing for years, to better manage the heat generated by AI computing systems.
If it continues to outperform the rest of the server industry, the stock could have significant upside potential. Wall Street analysts expect Supermicro’s earnings per share to grow 46% annually in the coming years – higher than the 33% estimate for Nvidia.
Additionally, Supermicro stock also offers better value than Nvidia. The current price-to-earnings (P/E) ratio is 35 – lower than the 45 P/E ratio for Nvidia. Investors get more earnings growth at a lower price with Supermicro – a recipe for superior returns.
2. Dell Technologies
Dell Technologies (NYSE: DELL) Shares are up 80% year to date, but the company’s shares could outperform Nvidia for the rest of the year due to increasing demand for the company’s AI servers.
Dell generates the majority of its revenue from client solutions, including PC sales, but infrastructure solutions is its fastest-growing business, with revenue up 22% year over year last quarter. AI server shipments have more than doubled over the year-ago period. Over the past year, AI server revenues have exploded from zero to $1.7 billion, and this is just the beginning.
AI server sales are weighing on Dell’s gross margin, but expected robust revenue growth in the AI server sector could support substantial earnings growth, sending the stock higher in the coming years.
The company’s AI server backlog grew about 31% to $3.8 billion last quarter. That increase could reflect new activities Teslaaccording to Evercore ISI analyst Amit Daryanani. Dell appears to be in a strong competitive position, as the analyst believes that Dell has won a larger number of server business from the electric vehicle maker than Supermicro.
Wall Street analysts predict that profits will grow 12% annually over the next few years, and these estimates could rise even further once Dell’s PC business recovers. The stock’s forward price-to-earnings ratio of 18 looks attractive given the potential for accelerating earnings growth, and could deliver superior returns.
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Johannes Ballard has positions in Advanced Micro Devices, Nvidia and Tesla. The Motley Fool holds positions in and recommends Advanced Micro Devices, Nvidia, and Tesla. The Motley Fool has one disclosure policy.
Nvidia shares are up 149% this year. Here are two stocks that could outperform for the rest of 2024. was originally published by The Motley Fool
