In the rapidly evolving AI landscape, two companies stand out for their distinctive roles: Super Micro Computer (Supermicro) and ASML. While both have shown substantial growth over the past year, investors might be wondering which one offers better prospects in the AI market. Here’s a comparative look at the two companies.
Supermicro: Riding the AI Server Boom
Supermicro specializes in building high-performance servers, which are increasingly essential for AI tasks. By partnering with Nvidia, Supermicro has early access to cutting-edge GPUs, which are essential for AI computing. The demand for its dedicated AI servers has soared, fueled by the rise of generative AI applications like OpenAI’s ChatGPT. In fiscal 2023, AI servers accounted for more than half of Supermicro’s revenue.
The company has a smaller market share compared to giants like Dell and Hewlett Packard Enterprise but is rapidly growing. Analysts at Bank of America estimate that Supermicro’s share of the AI server market will grow from 10% to 17% in the next three years as the market itself expands by 150%.
ASML: The Essential Lithography Provider
ASML is a powerhouse in lithography systems, which are used to print intricate circuits on silicon wafers. The company is the only provider of extreme ultraviolet (EUV) lithography systems, essential for manufacturing the world’s most advanced chips. These systems are indispensable to major chipmakers like TSMC, Samsung, and Intel.
Despite its critical role, ASML has faced challenges due to global semiconductor market fluctuations. The company also has been impacted by export restrictions that limit its ability to sell advanced equipment to China.
Comparing Growth and Valuations
Supermicro reported impressive growth, with revenue rising 37% in fiscal 2023 and expected to increase 110% this year. Analysts project its revenue will grow at a compound annual growth rate (CAGR) of 56% from fiscal 2023 to fiscal 2026, with earnings per share (EPS) expected to increase at a CAGR of 50%.
ASML, while still strong, shows slower growth. The company’s revenue grew 30% in 2023 but is expected to remain flat this year due to export restrictions and market volatility. However, its EPS is forecasted to grow at a CAGR of 20% from 2023 to 2026, driven by next-generation EUV systems.
Supermicro currently trades at a price-to-earnings (P/E) ratio of 25 based on forward earnings, while ASML trades at a forward P/E ratio of 44. Supermicro’s valuation seems justified given its rapid growth, whereas ASML’s premium valuation reflects its market dominance and pricing power in lithography systems.
Conclusion: The Better AI Stock
Both Supermicro and ASML present strong cases as investments in the AI sector. Supermicro offers a more compelling investment due to its higher growth rates, tighter focus on AI, and lower valuation. Although ASML remains a crucial player in the semiconductor industry and its long-term outlook is promising, its near-term growth could be limited until revenue growth picks up again. Therefore, for those looking to invest in AI-related stocks right now, Supermicro stands out as the better choice.
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