Two trending artificial intelligence (AI) stocks have led the way S&P 500 higher in 2024. When the market closed on April 24, Nvidia (NASDAQ:NVDA) And Super microcomputer (NASDAQ:SMCI) has posted year-to-date gains of 61% and 166%, respectively, outperforming all other stocks in the index. Still, some Wall Street analysts are predicting significant gains for shareholders next year.
Specifically, Rosenblatt’s Hans Mosesmann recently raised his price target for Nvidia to $1,400 per share, a 69% increase from the current price of $826 per share. Similarly, Loop Capital’s Ananda Baruah recently raised his price target on Super Micro Computer to $1,500 per share, a 91% increase from the current price of $787 per share.
Investors should never fixate on forecasts, especially individual analyst forecasts, but Nvidia and Supermicro deserve further consideration.
Nvidia: an increase of 61% since the beginning of the year
Nvidia specializes in accelerated computing, a discipline that uses specialized hardware and software to accelerate complex data center workloads such as 3D simulations, visualizations and artificial intelligence. Nvidia dominates the data center accelerator market due to the invention of the graphics processing unit (GPU) in 1999 and the subsequent introduction of the CUDA programming model in 2006.
While GPUs were originally designed to accelerate graphics workloads, CUDA allowed developers to unlock their parallel processing capabilities for other applications. Ultimately, this innovation propelled Nvidia to the forefront of the supercomputer accelerator market. The company accounted for 98% of data center GPU sales and 92% of generative AI processor sales last year, analysts said.
The CUDA ecosystem has expanded over the years, allowing developers to now build all kinds of GPU-accelerated applications. Additionally, Nvidia now sells subscription software and cloud services based on CUDA. Nvidia AI Enterprise, for example, is a software platform that streamlines the development of AI applications in various use cases, from recommendation systems in retail to route optimization in logistics to computer vision in robotics.
Nvidia reported excellent financial results in the fourth quarter. Revenue rose 265% to $22.1 billion and non-GAAP net income rose 486% to $5.16 per diluted share. This momentum has been driven by demand for data center products, particularly those related to AI. Additionally, Nvidia said its emerging software and services business has reached $1 billion in annual revenue, showing that the company is successfully diversifying beyond GPUs.
Management is forecasting 190% revenue growth for the first quarter. At the same time, the company expects non-GAAP operating expenses to increase by just 56%, meaning earnings will once again grow significantly faster than revenue. This momentum will eventually fade, but Nvidia is undoubtedly well positioned to monetize AI.
Wall Street expects Nvidia to grow earnings per share by 35% annually over the next three to five years. This consensus forecast makes the company’s current valuation of 69.3 times earnings seem a bit expensive; I doubt shareholders will see a 69% gain next year. More importantly, while I think patient investors can buy a very small position today, I personally would prefer to buy shares when the PEG ratio – currently at 1.98 (69.3 divided by 35) – is closer to 1.5 would be.
Super Micro Computer: up 166% year-to-date
Super Micro Computer develops and produces high-performance computing platforms that include server, storage and networking solutions. Its products include technologies from suppliers such as Nvidia, IntelAnd modern micro devicesThey address various use cases in enterprise data centers and cloud data centers, including artificial intelligence.
Supermicro places great emphasis on rapid development, so the company is often faster than its competitors when it comes to bringing new products to market. To quote Hans Mosesmann von Rosenblatt: “Supermicro has developed a model that is coming to market very, very quickly. They typically have the broadest product portfolio when a new product comes out from Nvidia, AMD or Intel.” This advantage helps Supermicro gain ground over competitors Dell Technologies And Hewlett Packard Enterprise. The company accounted for 10% of AI server sales last year, but by 2026 that number will reach 17%, according to analysts Bank of America.
Supermicro reported strong financial results in its second fiscal quarter (ended December 31). Revenue rose 103% to $3.6 billion and non-GAAP net income rose 71% to $5.59 per diluted share. Better yet, management expects third-quarter revenue and non-GAAP earnings per share to rise 205% and 244%, respectively.
Like Nvidia, Supermicro can’t sustain triple-digit growth indefinitely, but the company is certainly well-positioned to benefit as companies spend more on AI. Wall Street expects Supermicro to grow earnings per share by 50% annually over the next three to five years. In this context, the current valuation of 61.5 times earnings seems relatively reasonable, although it represents a significant premium to the three-year average of 21.1 times earnings.
Personally, I doubt Supermicro stock will return 91% over the next 12 months, but I would like to buy a small position today. However, before adding stocks to their portfolio, investors should be aware of short-term risk. Supermicro broke precedent earlier this month when it decided not to report preliminary third-quarter results. That caused the stock to fall on April 19th.
It’s possible that the official earnings report, scheduled to be released on April 30th, will contain some very disappointing news. Alternatively, management may have decided to skip preliminary results because the quarter performed exactly as expected.
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Bank of America is an advertising partner of The Ascent, a Motley Fool company. Trevor Jennewine holds positions at Nvidia. The Motley Fool has positions in and recommends Advanced Micro Devices, Bank of America and Nvidia. The Motley Fool recommends Intel and recommends the following options: long $45 January 2025 calls on Intel and short $47 May 2024 calls on Intel. The Motley Fool has a disclosure policy.
Get to know the 2 best S&P 500 stocks of 2024. According to certain Wall Street analysts, they could rise another 69% and 91%, respectively. was originally published by The Motley Fool