Should You Forget Super Micro Computer and Buy These 2 Millionaire-Maker AI Stocks Instead?

By Investor Empires On Nov 24, 2024

Super micro computerAmazon stock rose more than 30% on November 19 after it appointed a new independent auditor and submitted a compliance plan to… Nasdaq To avoid possible delisting. These announcements addressed two pressing issues: the departure of its auditor Ernst & Young in October, and the delayed filing of its 10K report, which could lead to its shares being delisted.

But even after that rally, Supermicro stock remains 76% below its all-time high since March. The server maker’s shares remain affected by concerns about declining gross margins, and competition from larger server makers such as… Dell Technologies and Hewlett-Packard Companyand alarming claims about inflated revenues from a prolific short seller. Its delayed annual report and Ernst & Young loss appear to support this bearish thesis, and the Department of Justice (DOJ) is said to be preparing to investigate Supermicro’s business.

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Supermicro stock looks 8x cheap Forward earningsbut will likely trade at this discount until its accounting and regulatory issues are fully resolved. So, rather than betting on Supermicro’s long-term turnaround, investors would probably be better off sticking with these two leading millionaire AI stocks instead: Microsoft (NASDAQ:MSFT) and Broadcom (NASDAQ:AFGO).

Microsoft has had a total return of over 900% over the past decade. This rally, which was mainly driven by the explosive growth of its cloud business, turned a $100,000 investment into more than $1 million.

Microsoft turned to Growth stocks again After Satya Nadella, who became its CEO in 2014, led the company to transform its desktop-based software into cloud-based services and mobile applications. It also turned Azure into the world’s second-largest cloud infrastructure platform and expanded its hardware and gaming businesses.

Over the past five years, Microsoft has ramped up its investments in OpenAI, the company that created ChatGPT, and has integrated the startup’s generative AI tools into its search and cloud services. Thanks to this insight, it was able to connect more businesses and consumers to its cloud ecosystem, gaining a first-mover advantage against alphabetGoogle and other tech giants in the emerging artificial intelligence market.

In fiscal 2024 (which ended in June), Microsoft’s AI-driven transformation boosted its total cloud revenue by 23% to $135 billion — representing 55% of its total revenue. From FY2024 to FY2027, analysts expect its revenue and earnings per share (EPS) to grow at a compound annual growth rate (CAGR) of 14% and 15%, respectively. Its shares still look reasonably valued at 28 times next year’s earnings, and it will likely remain a top play in the AI market for years to come.

Broadcom, which was known as Avago before it acquired the original Broadcom in 2016, has generated a total return of 2,300% over the past 10 years. This upside would have turned a $50,000 investment into $1.2 million.

Broadcom’s semiconductor business sells a wide range of chips to the mobile, wireless, networking, data storage and industrial markets. But over the past few years, it has built a massive infrastructure software business by acquiring CA Technologies, Symantec’s enterprise security division, and cloud software giant VMware.

Broadcom’s chipmaking and software businesses are growing. But over the past two years, its sales of optical networks and chips for the AI-oriented data center market have risen dramatically as more companies modernize their infrastructure. For fiscal 2024 (which ended in October), it expects its sales of AI-oriented chips to nearly triple to $12 billion, or roughly a quarter of its expected full-year sales. This rapid growth should offset sluggish sales of chips and non-AI infrastructure software, which are more sensitive to macro headwinds.

From fiscal 2024 to fiscal 2026, analysts expect Broadcom’s revenue to grow at a CAGR of 15% with earnings per share increasing at a CAGR of 124%. Earnings growth should be driven by rapid sales of its AI chips and expansion of its high-margin software business. Its stock may seem a bit pricey at 42 times forward earnings, but its track record of smart acquisitions, high exposure to the AI market, and strong growth could justify that higher valuation.

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Susan Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Liu Sun He has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet and Microsoft. The Motley Fool recommends Broadcom and Nasdaq and recommends the following options: long $395 January 2026 calls on Microsoft and short $405 January 2026 calls on Microsoft. The Motley Fool has Disclosure policy.

Should you forget about Super Micro Computer and buy AI millionaire stocks instead? Originally published by The Motley Fool