Beyond Nvidia: Promising AI Stocks to Explore
The S&P 500’s AI-Driven Gains
The S&P 500 (SNPINDEX: ^GSPC) has experienced an impressive 25% increase over the past year, largely fueled by the excitement surrounding artificial intelligence (AI). Notably, AI chipmaker Nvidia has been a significant contributor to this growth, accounting for 18% of the gains, as reported by Morningstar.
Exploring Alternatives to Nvidia
While Nvidia’s performance is remarkable, several investment opportunities exist beyond this tech giant. Analysts on Wall Street highlight the potential of Super Micro Computer (NASDAQ: SMCI) and Snowflake (NYSE: SNOW), both of which are well-positioned to capitalize on the AI revolution.
Super Micro Computer: A Strong Buy?
Loop Capital’s analyst, Ananda Baruah, has set a price target of $1,500 per share for Super Micro Computer, indicating a 91% upside from its current price of $784 per share.
Snowflake: Bullish Outlook
Additionally, Morgan Stanley analysts led by Keith Weiss set a bullish price target of $345 per share for Snowflake, suggesting a potential 154% upside from its current price of $136 per share.
Understanding Price Targets and Investment Considerations
Despite the allure of these price targets, investors should approach them with caution. However, both Super Micro Computer and Snowflake merit further investigation based on their fundamentals and market positions.
Super Micro Computer’s Innovative Solutions
Super Micro Computer specializes in designing and manufacturing computing platforms tailored for enterprise and cloud data centers. Their offerings include high-performance servers and storage solutions optimized for artificial intelligence applications.
Speed to Market: A Competitive Edge
Supermicro’s in-house design capabilities allow it to quickly adapt its platform building blocks to accommodate the latest chips from suppliers like Nvidia and Intel, ensuring a first-to-market advantage for new technologies. CEO Charles Liang emphasized this on a recent earnings call: “We provide optimized AI solutions at scale, offering a time-to-market advantage and shorter lead times over our competition.”
Custom Solutions for Diverse Client Needs
The company’s building-block approach provides clients flexibility in designing custom solutions through various combinations of platform components, making Supermicro’s portfolio one of the most comprehensive in the IT industry.
Substantial Market Share Growth
Supermicro’s innovative strategy has led to revenue growth that outpaces the industry average, gaining significant market share. In April, Tom Blakely from KeyBanc estimated Supermicro’s market share to be around 10%, with an expectation to reach 23% by the end of 2024.
Future Earnings Growth Expectations
Looking ahead, Wall Street anticipates Supermicro to grow earnings per share at an annual rate of 47% over the next three to five years, driven by a projected 27% annual growth rate in the AI server market through 2029.
Valuation and Potential for Returns
While investors should temper expectations regarding a potential 91% return in the next year, Supermicro appears reasonably priced, offering a strong chance to outperform the S&P 500 in the long term.
Snowflake’s Unique Offering
Snowflake provides businesses with a unified platform for data storage, transformation, and analysis across all three major public clouds. Its data sharing marketplace enhances its value as more data enters the platform.
Significant Market Opportunity
Morningstar highlights Snowflake’s differentiation in providing services across multiple clouds. The data analytics market is expected to grow, with sales across data lakes and data warehouses forecasted to rise at a rate of 24% annually through 2030.
Mixed Financial Performance
In its first-quarter results, Snowflake reported a 21% increase in customer count, reaching 9,822, and a 33% revenue rise to $829 million. However, its non-GAAP net income dropped 4% to $52 million.
Guidance Adjustments and Investor Sentiment
Management updated guidance for the year, expecting revenue growth of 24% in fiscal 2025, while lowering the non-GAAP operating margin projection to 3%. This adjustment led to a 17% decline in Snowflake’s share price following the earnings report.
The Road Ahead for Snowflake
Management attributes recent setbacks to increased GPU expenses related to its AI roadmap, projecting margin recovery as new products gain traction. The Cortex platform, launched in May, enables users to analyze data using advanced AI techniques.
Stock Valuation & Future Growth Potential
Looking ahead, Wall Street expects Snowflake to achieve 23% annual sales growth over the next three years. Despite a cautious outlook, the company’s valuation of 14.9 times sales indicates potential for appreciation in value.
Conclusion: Opportunities in the AI Sector
While both Super Micro Computer and Snowflake promise excitement as potential investments in the AI landscape, it’s essential to conduct thorough research and consider broader market trends.
Frequently Asked Questions
1. What is Super Micro Computer known for?
Super Micro Computer specializes in designing and manufacturing high-performance computing platforms and AI servers for enterprise and cloud data centers.
2. What price target was set for Super Micro Computer?
Loop Capital’s analyst set a price target of $1,500 per share for Super Micro Computer, suggesting a potential upside of 91% from its current price.
3. How does Snowflake differentiate itself in the market?
Snowflake offers a unified data platform that operates across all major public clouds, enabling businesses to store, analyze, and share data easily.
4. What growth rate is projected for the AI server market?
The AI server market is projected to grow at an annual rate of 27% through 2029, providing strong growth opportunities for companies in this space.
5. Should investors rely solely on price targets when making investment decisions?
Price targets should not be the only factor in investment decisions; thorough research, market trends, and company fundamentals should also be considered.
