Better AI Stock: Super Microcomputer vs ASML

super micro computer (SMCI 6.09%) and ASML (ASML 1.70%) They represent two different ways to invest in the growing artificial intelligence (AI) market. Super Micro Computer, commonly known as Supermicro, is one of the world’s fastest growing producers of dedicated AI servers. ASML is the world’s largest manufacturer of advanced lithography systems used to produce advanced chips. nvidia, AMDand other major chip manufacturers.

Over the past 12 months, Supermicro’s stock price has risen more than 480%, with ASML’s stock price up 42%. Let’s take a look at why Supermicro has larger margins than ASML and whether it can generate bigger profits in the near future.

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Differences between Supermicro and ASML

Supermicro builds high-performance servers that can handle tasks more efficiently than traditional servers. Through a long-standing partnership, Nvidia allows Supermicro access to its best-in-class data center GPUs before its larger competitors.

By the end of fiscal 2023 (which ended last June), Supermicro generated more than half of its revenue from dedicated AI servers. Many data center operators have rushed to install such servers to address the soaring popularity of generative AI platforms like OpenAI’s ChatGPT.

Supermicro controls a much smaller portion of the server market. Dell Technologies and hewlett packard enterprise. but, bank of america Supermicro’s share of the dedicated AI server market is expected to increase from 10% to 17% in the next three years as the market expands 150%.

ASML’s lithography systems are used to optically etch circuit patterns on silicon wafers. We are also the only manufacturer of advanced extreme ultraviolet (EUV) systems used to produce the world’s smallest, densest, and most power-efficient chips. These systems cost about $200 million each and require multiple planes to deliver.

The world’s most advanced chip manufacturers — TSMCsamsung and intel — All use ASML’s EUV system to produce high-end chips. Therefore, TSMC cannot manufacture Nvidia’s latest data center GPUs, AMD’s latest CPUs, and other advanced chips without ASML’s EUV system.

The indispensable nature of ASML’s lithography systems has made ASML a keystone of the global semiconductor market, but stringent export restrictions now prevent it from selling its advanced systems to Chinese chipmakers. Supermicro’s AI server sales in China also declined due to the technology war between the United States and China.

Which company is growing faster?

Supermicro’s revenue grew 46% in fiscal 2022 and 37% in fiscal 2023 as the market’s insatiable demand for new AI servers exceeded available supply. Analysts expect revenue to surge another 110% this year as it expands its AI server market share, growing at a compound annual growth rate (CAGR) of 56% from fiscal 2023 to fiscal 2026.

ASML’s revenue grew 14% in 2022 and 30% in 2023. It also benefited from the expansion of the AI ​​market, but this growth was largely offset by weakness in the smartphone and PC markets following the pandemic. ASML therefore has a more diversified play in the broader semiconductor market than just high-growth AI stocks.

Analysts expect ASML’s sales to be flat this year due to export curbs in China, but expect its sales to grow at a CAGR of 13% from 2023 to 2026 as it launches next-generation EUV systems to create smaller sizes. bit.

Analysts expect Supermicro’s earnings per share (EPS) to grow at a compound annual growth rate (CAGR) of 50% from fiscal 2023 to fiscal 2026. They expect ASML’s EPS to grow at a CAGR of 20% from 2023 to 2026. By these estimates, Supermicro trades at 25 times forward earnings, while ASML’s forward price-to-earnings ratio is much higher at 44.

Supermicro may seem more expensive than traditional server manufacturers like Dell and HPE, but it’s growing faster than both its larger competitors. It also appears to be reasonably valued compared to other high-growth AI stocks like Nvidia. ASML trades at a premium to many other semiconductor equipment manufacturers because it dominates the EUV market, has strong pricing power, and remains a leader in the growing semiconductor sector.

Better AI Stock: Supermicro

Supermicro and ASML are both solid long-term investments, but Supermicro’s higher growth rate, closer focus on the AI ​​market, and lower valuation make it a more attractive investment than ASML right now. ASML’s stock price could also rise gradually, but near-term gains may be limited until revenue growth accelerates again.