Forget NVIDIA: Super Micro Computer Stock Leads in Momentum

Key Points

• Super Micro Computer stock could look more attractive than NVIDIAfor investors in the coming quarters.
• Elon Musk backs this stock, and fundamental divergences between growth and valuation lead to a double-digit upside.
• Financial momentum shows the Vanguard Group another reason to increase their investment in the stock.

That's right, the better stock to watch for those investors who value momentum over everything else in the technology sector is not actually NVIDIA Co. NASDAQ: NVDA. Understanding that the artificial intelligence wave is only getting started, especially considering that chip and semiconductor technology will only advance according to Moore's law. But, if it's not NVIDIA, where can investors look to beat the momentum in the technology hype intoxicating markets today?

The half of the trading year is over, and performance is set in the books regarding percentage points. Over the past six months, NVIDIA stock delivered a stratospheric rise of 155% to surpass the $3 trillion valuation for the first time, placing it next to the likes of Microsoft Co. NASDAQ: MSFT and Alphabet Inc. NASDAQ: GOOGL. However, one stock beat NVIDIA with a 188% six-month performance.

That stock is Super Micro Computer Inc. NASDAQ: SMCI. Wall Street forecasts that the next few quarters could continue delivering a performance that leaves NVIDIA stock in the dark. This stock's still-in-the-darkness compared to NVIDIA is a good thing; it means that new investors will benefit from the pre-herd behavior of a stock, which happens when everyone stampedes into the same company.

Super Micro Computer Stock: Leading Industry Growth

One of the main drivers for stock prices is the earnings per share (EPS) growth that Wall Street forecasts for the next 12 months. Depending on that growth rate, markets will have a set multiple they would be willing to pay for that stock. The more growth, of course, the higher the multiple.

So, how is Super Micro Computer doing against competitors in this sense? Wall Street analysts forecast up to 43.6% EPS growth for the next 12 months. This compares to NVIDIA's EPS forecasted growth of only 25.3%, and investors can also take peer NetApp Inc. NASDAQ: NTAP as a sounding board against Super Micro Computer.

NetApp is forecasted to grow its EPS by 8.9% this year. Now that investors know Super Micro Computer is leading EPS growth, it should trade at the highest valuation metrics. That's not quite the case; this is where investors can get an advantage.

Super Micro Computer stock trades at 24.1x forward P/E. In contrast, NVIDIA trades at a much more expensive 36.2x forward P/E valuation, allowing investors to benefit from the ensuing rotation into a more realistic reflection of future growth.

How big can this gap be? Taking price action into account, investors already know that Super Micro Computer has outperformed NVIDIA over the past six months, but here's what that looks like over a year. NVIDIA stock trades at 87% of its 52-week high, while Super Micro Computer stock sits at only 67% of its 52-week high.

Elon Musk Backs Super Micro Computer Instead of NVIDIA

When Elon Musk, the man behind the market's leading artificial intelligence trends, picks a company to back his hardware needs to make innovation happen, investors should consider their own investment considerations.

Out of all the options in the market, Elon chose Super Micro Computer as his hardware supplier for his next artificial intelligence venture. If successful, this could spill over into providing hardware for Tesla Inc. NASDAQ: TSLA and even SpaceX.

Of course, this possibility is not baked into today's EPS projections. However, some analysts were not shy about letting markets know where they think the stock could be valued in a few quarters. Those at Loop Capital think the stock could be worth up to $1,500 a share, daring it to rally by as much as 80.3% from where it trades today.

Other analysts followed suit on this trend. Rosenblatt Securities slapped a $1,300 share valuation for Super Micro Computer stock, which may not be as bullish as Loop Capital. However, it still offers investors a 56.3% potential upside today.

Super Micro Computer's Financials Validate Wall Street's Confidence

Management was proud to report a 200% increase in revenue over the year, which was well above peers, according to the company’s third quarter 2024 earnings press release. Of course, that revenue growth led the company’s EPS to skyrocket.

EP was only $1.61 in the same quarter in 2023, but that metric jumped to $7.13 a year later to show investors where the industry’s growth really is.

Based on this financial momentum, management also felt comfortable projecting financials higher for the rest of the year according to guidance, giving analysts and Wall Street another point of reference to lean on. In light of this evidence, the Vanguard Group (the stock’s largest shareholder) boosted its stake in the company by 25.7%, bringing its net investment up to $6.3 billion today.