U.S. growth stocks, especially those in the technology sector, have seen significant sell-offs amid fears of an economic slowdown in recent weeks. Despite the macro uncertainty, the economy has proven resilient so far. Moreover, there is increasing speculation that the Federal Reserve may soon implement interest rate cuts, a move expected to bolster corporate earnings and restore investor confidence, potentially facilitating the recovery of growth stocks.
Against this backdrop, two prominent growth stocks — Nvidia (NVDA) and Super Micro Computer (SMCI) — have experienced notable declines, presenting a compelling buying opportunity near their current market price.
Let’s explore the catalysts that make Nvidia and Super Micro stocks an attractive investment.
Nvidia Stock to Ride High on Data Center Demand
Nvidia stock has declined 11.4% over the past month due to concerns about its valuation, and amid a broader downturn in tech stocks. However, this dip could be a good entry point for investors, considering the solid demand for its graphics processing units (GPUs) that power artificial intelligence (AI) deployments.
Thanks to the solid demand, the company’s Data Center segment has experienced remarkable growth. For example, in the first quarter of fiscal 2025, the Data Center segment generated $22.6 billion in revenue, marking an incredible 427% increase year-over-year.
The momentum in Nvidia’s Data Center business is expected to sustain in Q2 and beyond, contributing significantly to its overall revenues and earnings. Management anticipates that the company’s top line will more than double in Q2, with Data Center revenues being a key driver. This growth will likely be fueled by solid demand for Nvidia’s Hopper GPU computing platform, which serves diverse customers. These include cloud service providers, consumer internet companies, sovereign AI, and automotive and healthcare sectors, each creating multiple multibillion-dollar markets.
Further bolstering Nvidia’s prospects is the progress the company is making with the production and shipment of the H200 GPUs. These advanced chips are projected to offer higher performance than the H100, positioning Nvidia to capitalize on the increasing demand for high-performance AI solutions.
In summary, Nvidia’s solid sales and earnings growth prospects suggest an upward trend in its stock price. Analysts are optimistic, with 34 out of 39 recommending a “strong buy,” two suggesting a “moderate buy,” and three advising a “hold,” resulting in a consensus rating of “strong buy.”
The average price target for Nvidia's stock is $141.54, suggesting a potential upside of approximately 23% from recent levels.
AI Demand to Drive Super Micro Stock
Super Micro Computer's stock has taken a hit, dropping about 36% over the past month. This sharp decline is attributed mainly to the company’s lower-than-expected earnings, margin pressures, mounting competition, and a broader sell-off in tech stocks.
Given the sell-off, Super Micro stock’s valuation has become more attractive. It is trading at forward price-to-earnings (P/E) multiple of 17.39, below its historical average. However, it’s still higher than Dell (DELL) and Hewlett Packard Enterprise’s (HPE) respective P/E ratios of 13.35 and 10.91. It’s worth noting that Super Micro offers superior sales and earnings growth rates, which implies that its premium valuation is warranted.
Super Micro is a leader in AI infrastructure solutions, and the growing demand for its next-generation air-cooled and direct liquid cooling (DLC) rack-scale AI GPU platforms is expected to continue driving solid revenue growth. The company also has a strong pipeline of design wins and a robust backlog, positioning it well for sustained growth in 2025 and beyond.
SMCI's growing market share and new products designed to offer cost-effective solutions are likely to generate strong demand and increase sales.
Although the company faced margin pressures in the fourth quarter, its long-term outlook remains positive. As supply chain challenges ease, Super Micro’s margins are expected to improve gradually, with management targeting a gross margin range of 14-17%. This improvement will be driven by a better product mix, manufacturing efficiencies, and the launch of new platforms. Moreover, margins will likely gain from lower manufacturing costs as it scales up production in Asian markets.
While some analysts are cautious due to near-term margin headwinds, the potential for higher sales and gradual margin improvement could drive its stock price higher.
Currently, of the 13 analysts covering SMCI stock, six rate it as a “strong buy,” six recommend a “hold,” and one has a “strong sell.”
The consensus rating on SMCI is a “moderate buy,” with an average price target of $950, implying a potential upside of 66% from current levels.
On the date of publication, Amit Singh did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
