Perhaps no company has benefited more from the generative artificial intelligence (AI) boom than Nvidiawhose stock price has risen more than 200% in the last 12 months as customers hoard its hardware to run these complex applications.
But investors don't have to put all their eggs in one basket. Let's discuss why modern micro devices (AMD -0.72%) and Super microcomputer (SMCI 2.42%) could also be excellent ways to bet on this opportunity.
modern micro devices
Nvidia currently dominates the AI-enabled graphics processing unit (GPU) industry with over 80% market share. But given the high prices and ever-growing demand, the opportunity is ripe for competition. In 2024 and beyond, AMD hopes to capture some of this valuable niche, potentially fueling its long-term growth in the process.
CEO Lisa Su believes the $45 billion AI chip market could grow to $400 billion by 2027. And their company has released its new MI300 GPU family, designed to compete with Nvidia's flagship H100 in training and running AI applications. Management expects the products to contribute around $2 billion to sales in 2024.
To be fair, that's a modest sum compared to the $20.1 billion AMD earned in the last 12 months. However, that number could rise to $20 billion in three years if the company maintains just a 5% share (assuming Su's prediction of a $400 billion market comes true).
With a forward price-to-earnings (P/E) ratio of 48, AMD's valuation discounts a lot of growth expectations, so the company doesn't have much room for error. However, the unprecedented surge in demand for AI hardware suggests that it can meet and continue to exceed expectations.
Super microcomputer
With shares already up 67% in 2024, Super Micro Computer looks set to extend the rally that has seen the stock rise fivefold in just 12 months. Although the company is no longer as cheap as it was at the beginning of last year, it can benefit from the success of its hardware suppliers and its own innovations in modernizing data centers.
Super Micro plays an important role in the data center chip industry by turning hardware from companies like Nvidia into consumer-grade computers that companies can use to store data and run and train AI applications. Rising demand for AI chips has bolstered the company, and management raised its fiscal second-quarter guidance to a best-case range of $3.6 billion to $3.65 billion from $2.9 billion.
Image source: Getty Images.
Admittedly, Super Micro's business model leaves it uncomfortably dependent on hardware supplies provided by its partners. But as data center operations become more demanding, the company could also see increasing sales from its liquid cooling systems, which are designed to help customers prevent heat from damaging their hardware.
Analysts at Rosenblatt Securities believe this deal may have played a role in raising Super Micro's forecast. And over time, it could provide the company with much-needed diversification. With a forward P/E ratio of 25, Super Micro stock is cheaper than that Nasdaq-100 Index of 30, making it a relatively affordable way for investors to bet on this opportunity.
Which stock suits you best?
Advanced Micro Devices and Super Micro Computers are great ways to learn about the capabilities of AI hardware. However, their stocks fit different investment strategies. AMD may offer more growth potential at a higher price, while Super Micro is a more value-oriented choice.
Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices. The Motley Fool recommends Super Micro Computer. The Motley Fool has a disclosure policy.