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Artificial intelligence (AI) continues to be red hot as the new year unfolds, with companies like Meta Platforms (META), Amazon (AMZN), and Microsoft (MSFT) doubling down on capital expenditures related to the technology. Amazon, for instance, shocked investors by revealing it plans to spend $100 billion on AI this year alone.
Over the last two years, this has created outsized opportunities in popular stocks Super Micro Computer (SMCI) and Palantir (PLTR). Offering AI-driven tools and solutions for data center infrastructure, these companies rose up to meet outsized demand. Now, with Palantir’s results freshly out and Super Micro heading to the earnings confessional on Feb. 11, which is the better AI stock to buy now?
The Bull Case for Super Micro Computer Stock
California-based Super Micro Computer (SMCI) designs and manufactures servers, storage systems, and networking equipment. One product that has thrust it into the spotlight is a liquid cooling solution designed to reduce the power costs associated with AI data centers. The company is currently valued at a market capitalization of $19.8 billion.
After its auditor EY resigned and the Department of Justice launched an investigation into Super Micro, shares have been on a bumpy ride. They are down 48% over the past 52 weeks. Signs of life are emerging, with a 16% pop in the year to date.
After the haircut, SMCI stock trades at a forward price-earnings ratio of 16.85x, 50% below the industry average. Its price-sales ratio is also a steal at 0.81x, compared to an average of 3.2x for the industry.
Super Micro has been in hot water for delaying its annual and quarterly report filings with the SEC, and it has until Feb. 25 to make everything right or risk delisting. In November, the company reported preliminary results for its fiscal first quarter that disappointed investors. Namely, its revenue range was lowered to $5.9 billion to $6 billion, down from $6 billion to $7 billion. The upper end of its earnings guidance was also slashed from $0.77 to $0.70.
Given the headwinds SMCI faced in 2024, analysts have a consensus “Hold” rating. Their average price target of $49.56 represents nearly 40% upside potential and its Street-high price target of $100 suggests shares could increase 181% from here.
The Bull Case for Palantir Stock
Colorado-based Palantir (PLTR) is a software company specializing in tools for data-driven decision-making. Its products include Foundry, Gotham, and the Artificial Intelligence Platform (AIP) and it caters to both government and commercial clients. The company is currently valued at a market cap of $253.5 billion.
Palantir has been one of the best-performing companies over the last year, with a 52-week gain of 380%. The rally has continued in the year to date, with gains of nearly 50%.
However, this performance comes at a cost. Palantir currently trades at a forward P/E above 200x, compared to an industry average of 32x. Its price-sales of 67x also dwarves the 3x average.
CEO Alex Karp said that the company “eviscerated” expectations for its fourth-quarter results. Revenue of $828 million was up 36% year-over-year, far surpassing estimates of $776 million. Earnings per share of $0.14 also beat out estimates of $0.11. The company delivered significant revenue growth in both its government business (up 45% YOY in the U.S.) and its commercial business (up 64% YOY in the U.S.)
Analysts have cooled off on Palantir due to its super-high valuation and its share-price gains thus far. They have a consensus “Hold” rating on the stock and an average target of $63.94, more than 50% below its trading price. Its Street-high price target of $120 is just 7% higher.
SMCI vs. PLTR: What’s the Bottom Line?
Super Micro computer offers a better valuation, and could very well surge if the company meets its Feb. 25 deadline and shares good news for its fiscal Q2. However, the uncertainty around a potential delisting decision and its accounting history could make it a risky buy. Palantir is much more expensive, but the company has delivered significant growth over the past two years. A failure to continue delivering could send shares plunging. With “Hold” ratings, the decision may be a toss up, but SMCI stock could offer a better short-term opportunity for investors with more upside to its average price target.
