Super Micro Computer (NASDAQ:SMCI), a provider of artificial intelligence server infrastructure, became the market’s new shiny metal object in 2024.
There are reasons to like Super Micro Computer, including an agreement to manufacture hardware for a well-known billionaire. However, it’s problematic that Super Micro Computer stock is expensive and susceptible to a sustained pullback.
It’s understandable if you’re on the hunt for the “next” or “new” Nvidia (NASDAQ:NVDA). However, the market has already discovered and lionized Super Micro Computer.
Yet, there’s another company and stock that provides excellent AI-server industry exposure. So, you don’t have to invest in a richly valued market darling like Super Micro Computer.
Don’t Sleep on These Announcements
You might not think that brief postings on X (formerly known as Twitter) could have much importance. However, three X postings could have major implications for the generative AI market and for Super Micro Computer.
Just to provide some background info, Tesla (NASDAQ:TSLA) CEO Elon Musk heads an AI startup called xAI. This new company is developing Grok, an AI chatbot that’s supposed to rival OpenAI’s ChatGPT.
Not long ago, Dell Technologies (NYSE:DELL) CEO Michael Dell stunned the tech world when he posted on X, “We’re building a Dell AI factory with @nvidia to power @grok for @xai @elonmusk.” This posting quickly garnered millions of views.
That same day, Musk offered some clarification in an X posting. He wrote, “To be precise, Dell is assembling half the racks that are going into the supercomputer that xAI is building.”
Furthermore, Musk stated in posting on X that “SMC” or Super Micro Computer will build the other half the AI-supercomputer racks.
Hence, you might be tempted to load up on Super Micro Computer stock right now. After all, an agreement with Musk is generally great news, and Super Micro Computer could benefit greatly if xAI and Grok are highly successful.
Super Micro Computer’s Not-So-Super Valuation
Bear in mind, even before Dell’s and Musk’s aforementioned social media postings, Super Micro Computer was already a market darling. The company’s valuation suggests that some investors already pinpointed Super Micro Computer as the “next” Nvidia.
Let’s do a side-by-side comparison to support our point. Super Micro Computer’s trailing 12-month GAAP price-to-earnings ratio is 46.18x. For reference, the sector median P/E ratio is 30.22x, and Dell Technologies’ P/E ratio is 28.27x.
Perhaps you’d prefer to use the trailing 12-month price-to-sales (P/S) ratio as your valuation gauge. That’s fine, as Super Micro Computer’s P/S ratio is 3.8x, versus the sector median P/S ratio of 2.98x.
Meanwhile, Dell has a P/S ratio of 1.1x. So now, we’re starting to get the impression that maybe Super Micro Computer isn’t the business involved in the Musk deal that investors should be focusing on.
Here’s a Better Bet Than Super Micro Computer Stock
Super Micro Computer certainly isn’t an underdog in 2024. The financial press already gave Super Micro Computer plenty of press coverage, and stock traders have quickly bid up the company’s stock price. In contrast, Dell Technologies appears to be just starting on its long-term comeback.
Both companies will benefit from their arrangement with Musk and xAI, no doubt. Still, it’s understandable if valuation concerns might dissuade you from buying Super Micro Computer stock right now.
Instead, investors ought to consider buying Dell stock today. They might also think about taking a share position in Super Micro Computer if the price comes down 20% or 30%.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
