5 Artificial Intelligence (AI) Hardware Stocks That Are Dominating the Market and Still Affordable (Excluding Nvidia)

Semiconductor stocks rose significantly last year. that much PHLX Semiconductor Division The index rose a whopping 51% during this period, driven by surging demand for chips driven by increased adoption of artificial intelligence (AI) applications.

Semiconductors play a central role in the AI ​​revolution. Training of AI models like OpenAI’s ChatGPT is made possible using chips designed by: nvidia (NVDA -0.55%). This explains why Nvidia’s AI-focused graphics processing units (GPUs) have been selling like hot cakes over the past 18 months, sending the company’s sales and profits soaring.

NVDA Revenue (TTM) data from YCharts

The market has rewarded Nvidia handsomely for its stellar growth. This can be seen in the company’s stock price, which is up 225% over the past year. With expectations of strong top and bottom line growth, it’s no surprise that Nvidia also maintains excellent momentum. But Nvidia is not the only company driving the AI ​​revolution in the hardware supply chain.

Let’s take a closer look at five other names playing a central role in the AI ​​hardware market.

These server manufacturers are winning big with AI adoption.

While like Nvidia, inteland advanced micro devices We need to build or design chips used to process AI workloads, such as large language model (LLM) training, and load these chips into server infrastructure specifically designed for running AI workloads for inference purposes. Dell Technologies (dell 8.56%) and super micro computer (SMCI 0.56%) There are two names that are benefiting greatly from the growing demand for AI-optimized servers.

While Dell’s stock price has risen 184% in the past year, Supermicro’s stock has soared, gaining an astounding 847%. Despite these massive gains, both stocks are still trading at attractive multiples. Dell’s sales multiple is just 0.9, while Supermicro’s figure is 5.6. Their sales multiples are lower than before. NASDAQ-100 Technology Sector The index’s average price-to-sales ratio is 7.3.

A closer look at how AI is driving growth reveals why investors have been buying stocks directly over the past year. It also explains why it’s still worth buying. Dell, for example, is expected to return to growth this fiscal year after struggling last fiscal year due to sluggish sales of personal computers (PCs).

The peak for fiscal year 2024 (ending February 2, 2024) was $88.4 billion, down 14%. Dell guided for revenue of $93 billion this year, at the midpoint of its guidance range, with demand for AI servers being one of the reasons for the turnaround. Dell shipped $800 million worth of AI-optimized servers last quarter. Even better, AI server backlog nearly doubled quarter-over-quarter to $2.9 billion, thanks to a 40% sequential increase in AI server orders.

The good thing is that Dell’s AI server orders may continue to grow. According to Foxconn, the AI ​​server market is expected to grow from $30 billion last year to $150 billion in 2027. That’s why Super Micro Computer stock turned out to be the hottest stock on the stock market last year.

Supermicro’s growth is remarkable. Sales in fiscal 2024 are expected to double from $7.1 billion in fiscal 2023 to $14.5 billion. More importantly, the server maker claims its production capacity is robust enough to support annual sales of more than $25 billion. . This explains why analysts have significantly increased their earnings estimates for the next few years. However, it wouldn’t be surprising if the company defied these expectations with its capacity expansion moves.

SMCI revenue estimates for next fiscal year data from YCharts

Memory and custom chips have also seen a strong AI-driven boom.

Memory chips as follows micron technology (M.U. 4.29%) We’re helping Nvidia manufacture powerful AI GPUs. This explains why Micron is selling out its entire 2024 capacity for high-bandwidth memory (HBM) chips featured in AI chips, while also allocating the “overwhelming majority” of its HBM production lines to next year.

HBM is deployed to increase the speed at which data is fed to AI processors, significantly improving the performance of AI processors. This explains why Nvidia and AMD have driven Micron’s impressive growth by equipping their AI chips with more HBM. The memory specialist’s sales increased 58% compared to the previous quarter to $5.8 billion. Sales are expected to grow further this quarter, reaching $6.6 billion, up 76% from $3.75 billion in the year-ago quarter.

Analysts expect Micron to finish the year with sales of $24.3 billion, up 57%, and expect fiscal 2025 to be another impressive year, with sales growing 42%. Currently, Micron’s stock price is trading at 6.4 times sales despite rising 95% last year, and the HBM market is expected to generate annual sales of $49 billion in 2030 compared to $857 million last year. That seems like a wise thing to do.

Another chip maker benefiting from the AI ​​chip market is Broadcom (AVGO 1.83%), a stock that is up 106% over the past year. In February JP Morgan Analyst Harlan Sur pointed out that Broadcom will become the second-largest AI chip company with $8 billion to $9 billion in revenue in 2024, thanks to customers like: alphabet and meta platform A person who creates custom AI chips.

However, when Broadcom reported its first quarter fiscal 2024 results, management said its AI chip sales would exceed $10 billion in the current fiscal year. But don’t be surprised to see Broadcom exceed that number as it recently added new customers for its custom AI chips. Wall Street analysts say the newly added customers Amazon, apologizeOr TikTok parent ByteDance.

It’s easy to see why Broadcom’s AI customer pipeline is growing. Cloud companies are looking to develop custom chips to run AI workloads to cut costs, reduce power consumption, and improve performance. This explains why. Morgan Stanley predicts that custom chips will account for 30% of the $182 billion AI semiconductor market in 2027, indicating that the AI ​​chip market Broadcom can address could be worth nearly $55 billion within three years.

Therefore, Broadcom’s AI business can continue to grow at a good pace going forward. So it may be a good idea to buy the stock now, as it is trading at 28 times forward earnings, in line with the Nasdaq-100’s forward earnings multiple. Nvidia’s figure is 36.

Bonus Pick

All the names mentioned above supply AI hardware, but ultimately belong to electronic manufacturing service providers such as: Jabil (JBL 2.98%) To create the final product. The stock is up 52% ​​over the past year, but has recently seen a significant decline. But smart investors would do well to look at the bigger picture.

From component design and sourcing to final product assembly, Jabil products and services are deployed to reduce costs and improve efficiency. Not surprisingly, Jabil has seen a significant surge in AI-related orders. In a recent performance conference call, management pointed out that “the scale of AI GPUs in the first half of 2024 will be 200 times the level of 2023.”

Moreover, Jabil noted that AI-related revenues will increase 20% to $6 billion in fiscal 2025. This represents 20% of the company’s revenue, based on consensus estimates of $30 billion in fiscal 2025 revenue.

Jabil’s AI business could continue to grow in the future as the company claims to be “capturing share in multiple end markets in the AI ​​data center infrastructure space.” That’s why investors might want to take a closer look at this AI stock, which trades at 0.5 times sales and 21 times trailing earnings, before it gets into a bullish mood.