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Artificial intelligence (AI) continues to be a formidable force driving the tech industry. Semiconductor market leader Nvidia (NVDA) remains a strong favorite, with the stock up roughly 85% year to date. While it is not too late to buy Nvidia stock, there are a few other AI options for investors who believe they have missed out on Nvidia.
The first on my list is Super Micro Computer (SMCI), which has soared an eye-catching 804.8% in the last year. Its massive revenue and earnings growth have also earned it a spot on the S&P 500 Index ($SPX), which has contributed to its bull run.
The second AI stock investors should consider is cloud computing firm Snowflake (SNOW). With the rapid expansion of AI, cloud computing and data analytics solutions demand is on the rise, enhancing Snowflake's potential.
Wall Street believes that as AI advances, both companies will have tremendous opportunities to expand their businesses, resulting in increased revenue and earnings. Let’s find out more.
AI Stock #1: Super Micro Computer
Super Micro Computer (SMCI) offers efficient computing solutions. As AI relies on complex and large-scale computations, SMCI's enhanced server solutions are in high demand. Due to a significant demand for its AI products, revenue jumped by 103.3% year over year to $3.66 billion in the second quarter of fiscal 2024. Additionally, adjusted earnings per share (EPS) rose by 71.5% to $5.59 in the quarter.
Year to date, the stock is up 244%, far outperforming the Nasdaq Composite's ($NASX) 11.3% gain.
Together with its partners - Nvidia, Advanced Micro Devices (AMD), and Intel (INTC) - the company has a strong AI portfolio. SMCI recently launched three powerful Supermicro SuperCluster solutions powered by Nvidia GPUs.
The company ended the second quarter with $726 million in cash and cash equivalents and $376 million in bank debt. Management revised its full-year fiscal 2024 revenue guidance, expecting $14.3 billion to $14.7 billion in revenue, in line with analyst expectations. Earnings in fiscal 2024 are expected to increase by 85%.
Furthermore, revenue and earnings are expected to increase by 40.9% and 40.1%, respectively, in fiscal 2025. Despite this explosive growth forecast, SMCI stock is currently trading at 29 times forward 2025 earnings. Given its long-term AI-driven prospects, I believe the stock is currently an affordable buy.
Overall, on Wall Street, SMCI stock is a “moderate buy.” Out of the 11 analysts covering the stock, seven rate it a "strong buy," three suggest a "hold,” and one recommends a “strong sell.”
Analysts remain optimistic about SMCI's revenue and earnings potential. Recently, Bank of America Securities analyst Ruplu Bhattacharya reiterated a “buy” rating with a target price of $1,280. The analyst thinks SMCI has a "solid position in the rapidly expanding" AI server market.
Furthermore, Argus Research initiated coverage on SMCI with a “buy” rating and a Street-high target price of $1,350.
SMCI stock has already surpassed its average target price of $803. Given its ongoing rally, I believe the stock can easily reach the Street's high estimate of $1,350, implying a 37.8% upside potential from current levels.
AI Stock #2: Snowflake
With AI rapidly evolving, companies like Snowflake (SNOW) that help store, manage, and analyze large amounts of data will always be in demand. Snowflake had a good run last year, rising around 38% compared to the S&P's 25% gain. However, the company is unprofitable and the stock is expensive, making investors skeptical.
SNOW stock is down 18% YTD, which I believe is the right opportunity to buy and hold it for the long haul.
Snowflake's top-line growth is primarily driven by product revenue generated through platform consumption in a single, integrated offering. The rest comes from professional services and other segments.
In the fourth quarter of fiscal 2024, product revenue increased 33% year-over-year to $738.1 million. Total revenue came in at $774.7 million, representing growth of 32% over Q4 of fiscal 2023.
Snowflake's customers with more than $1 million in trailing 12-month product revenue totaled 461. Furthermore, the company's remaining performance obligations (RPO), which represent the amount of contracted revenue that will be recognized in the future, increased 41% to $5.2 billion. Management expects 50% of this RPO to be realized within the next 12 months.
While the company remains unprofitable, the net loss per share fell to $0.51 from $0.64 in the year-ago quarter. At the end of fiscal 2024, which ended January 31, Snowflake had $3.84 billion in cash, cash equivalents, and short-term investments. Furthermore, the company generated an adjusted free cash flow of $810.2 million in fiscal 2024.
Management expects product revenue to grow by 22% in fiscal 2025 to $3.2 billion. For fiscal 2025, analysts forecast a revenue increase of 22.3% to $3.43 billion, further increasing by 23.6% in fiscal 2026.
While Snowflake's revenue is rapidly increasing, the company's bottom line remains in the red. However, analysts expect the company to post a profit of $0.95 per share in fiscal 2025.
Currently, SNOW stock is trading at 15 times the forward estimated 2025 sales, compared to its four-year historical price-to-sales ratio average of 72x. Although the stock appears to be expensive, the increase in public cloud spending opens up many opportunities for Snowflake in the coming years.
Turning to Wall Street, SNOW stock is a “moderate buy” overall. Out of the 39 analysts in coverage, 23 rate it a “strong buy,” while three rate it a “moderate buy,” 12 rate it a “hold,” and one analyst recommends a “strong sell.”
Based on its mean target price of $205.39, the stock has an upside potential of 27.5% over the next 12 months. The Street-high estimate stands at $246.
