Santa Clara, California – The artificial intelligence (AI) revolution is well underway, with Nvidia emerging as a significant player in the industry. Although Nvidia has captured significant attention worldwide, it may not be the only major beneficiary of the AI boom.
Super Micro Computer, a company riding on Nvidia’s coattails, managed to surpass Nvidia in performance in the first half of the year. Supermicro’s stock soared by a remarkable 188% in the first half, outpacing Nvidia’s 150% growth, including dividends. While Nvidia closed the quarter near year-to-date highs, Supermicro had achieved even greater gains earlier in the year, reaching a peak of a 331% increase by mid-March.
The key to Supermicro’s success lies in its AI-related growth, similar to Nvidia’s trajectory. As a server-maker, Supermicro’s AI servers, primarily powered by Nvidia GPUs, saw substantial demand, contributing to over 50% of its revenue. This growth was fueled by the increasing popularity of AI technologies, leading to Supermicro’s impressive stock performance.
Even though Nvidia reported higher revenue growth compared to Supermicro in Q2, with a 262% increase versus Supermicro’s 200% increase, the stock market performance does not always directly correlate with financial results. Supermicro’s success in the market can be attributed to its starting valuation, which was significantly lower than Nvidia’s at the beginning of the year.
Valuation plays a crucial role in short-term stock performance. Supermicro started the year with a lower valuation compared to Nvidia, leading to an 80% expansion in its price-to-earnings ratio during the quarter. In contrast, Nvidia’s P/E ratio only increased by 8%, highlighting the impact of starting valuations on stock performance.
Both Supermicro and Nvidia saw their future earnings estimates rise during the first half of the year, with Supermicro benefiting from an early boost in forward guidance. The market reactions to the earnings reports of both companies also influenced their stock performance, showcasing the importance of managing expectations in the stock market.
The outperformance of Supermicro illustrates the significance of valuation and starting expectations in stock performance. As AI technologies continue to gain momentum in the market, investors are advised to consider these factors when evaluating investment opportunities in the tech sector. Investing in companies with strong growth potential at reasonable valuations can lead to favorable returns in the long run.