Why I'm Passing and Buying This AI Leader Instead of Supermicro Stock
Supermicro stock jumped 20% after pre-announcing strong preliminary results, but the author prefers buying Nvidia instead due to its higher gross margins and less controversy.
Intelligence analysis by Llama
The author believes that Nvidia is a safer and smarter bet than Supermicro due to its strong demand for AI infrastructure, high gross margins, and less controversy. Nvidia's forward P/E ratio is only 16 times fiscal 2028 estimates, making it an attractive investment opportunity.
Imagine you're building a super-powerful computer to help with artificial intelligence. You need special chips to make it work, and those chips are in high demand. Supermicro is a company that builds computers using those chips, but it's not the best company to own because it's not very good at making money. Nvidia, on the other hand, is the company that makes those special chips, and it's very good at making money. So, if you want to invest in the company that makes the chips that power artificial intelligence, Nvidia is the better choice.
Analysis
A $60B Vote of Confidence
Supermicro's preliminary Q2 numbers show no current let-up in demand for AI infrastructure. The company's revenue is expected to come in toward the low end of its $11 billion to $12.5 billion range, which is still about double the revenue it generated a year ago. This is good news for Supermicro, but it's ultimately even better news for Nvidia, which designs and assembles servers and rack solutions for data centers. Nvidia's gross margins are around 75%, compared to Supermicro's 8.2% to 8.4% guidance.
Why Cursor?
A shift toward enterprise or sovereign clients, which have less buying power, can also positively impact Supermicro's margins. However, this dynamic could be temporary, and Supermicro is still, by and large, a low-margin middleman. The company has a history of controversy, and its offices in Taiwan were raided at the end of June, related to employees smuggling chips to China.
The Road Ahead
Nvidia is the better stock to own because it has a strong track record of delivering high-quality products and has a clear path to continued growth. The company's forward P/E ratio is only 16 times fiscal 2028 estimates, making it an attractive investment opportunity. With the king of AI infrastructure trading at a forward P/E of only 16 times fiscal 2028 estimates, investors don't need to overthink this and can just buy the stock of the high-quality market leader.
Key points
- Supermicro's preliminary Q2 numbers show strong demand for AI infrastructure.
- Nvidia is the better stock to own due to its high gross margins and less controversy.
- Nvidia's forward P/E ratio is only 16 times fiscal 2028 estimates, making it an attractive investment opportunity.
If Nvidia continues to deliver high-quality products and has a clear path to continued growth, its stock price could increase significantly. With a forward P/E ratio of only 16 times fiscal 2028 estimates, investors can expect strong returns in the long term.
If Nvidia's demand for AI infrastructure slows down, its stock price could decrease. Additionally, if the company faces increased competition or regulatory issues, its growth could be hindered.
