This Stock Beat Nvidia in the First Half. Can It Do It Again?

Nvidia (NASDAQ: NVDA) added to its winnings in the first half, gaining about 150% after already climbing 1,300% over the past five years. The company dominates the artificial intelligence (AI) chip market, holding an 80% share, and also sells a variety of related products and services to companies launching AI projects. This has resulted in growth, with earnings advancing in the triple digits quarter after quarter.

As great as this sounds, though, Nvidia isn't the best performer of the first half. Another stock actually soared past the chipmaker, skyrocketing 188%. This company also operates in the AI space and has seen earnings climb -- and this player actually benefits from growth of Nvidia and other chip designers.

Could this Nvidia- and market-beating stock offer investors a repeat performance in the second half? Let's find out.

Image source: Getty Images.

Serving AI data centers

The player that's wowed the market in recent times actually has been around for quite a while -- more than 30 years to be exact. I'm talking about Super Micro Computer (NASDAQ: SMCI) , a maker of servers, workstations, full rack scale solutions, and other equipment crucial to the operations of AI data centers. Supermicro's revenue progressively rose over the years, but the AI boom marked a clear turning point, helping sales and net income to skyrocket.

Earlier this year, Supermicro even reported its first $3 billion quarter -- that was the company's annual revenue level as recently as 2021.

Supermicro has benefited from demand for top AI chips because customers generally need not only a chip but a variety of equipment -- and the company integrates these chips into its products. So when Nvidia or Intel , for example, launch a new chip, this creates demand for Supermicro's products too. To maximize the benefit, Supermicro works hand-in-hand with these companies, monitoring their development pipelines so that it can immediately include their innovations in its equipment.

And Supermicro's "building blocks" process -- with most of its products sharing common parts -- also makes it easy to quickly produce equipment tailored to customers' needs. All of this has helped the company grow five times faster than its industry over the past 12 months.

There's reason to be optimistic this will continue because AI market growth is in its early days. Analysts predict today's $200 billion market will reach beyond $1 trillion by the end of the decade -- and this should translate into sustained demand for Supermicro's products.

A new growth driver

On top of this, Supermicro's direct liquid cooling (DLC) technology may serve as a new growth driver for the company. AI data centers generate a tremendous amount of heat, and this situation only will worsen as workloads intensify.

But Supermicro's DLC technology solves this problem, and customers now are taking notice. Supermicro's DLC solutions, increasing from zero market share to less than 1% in the company's 30-year history, could take as much as a 30% share over the next couple of years, The Taipei Times reported, citing the company's chief executive officer Charles Liang.

All of this means Supermicro's spectacular growth may be far from over, and in the second half of this year, Nvidia's release of its game-changing new architecture -- Blackwell -- and chip could offer the equipment maker a new boost. Supermicro recently offered a sneak peek of its Blackwell products and says it's focused on developing new generative AI and inference-optimized systems accommodating the market leaders' latest chips.

Could Supermicro beat Nvidia?

Now, let's get back to our question: Could Supermicro continue to beat Nvidia and the general market in the second half? I think it's very likely this equipment giant will outperform the market, thanks to its growth prospects and position in the hot area of AI.

As for surpassing Nvidia's gains, it's possible. In spite of Supermicro's first-half increase, the company trades at a significant discount to the chip designer -- about 24x forward earnings estimates versus 46x for Nvidia. At the same time, the earnings-per-share growth estimate of 62% for the coming five years for Supermicro tops average estimates of 46% for Nvidia.

These points could attract investors and help Supermicro soar in the second half. But even if this top equipment company doesn't offer us a repeat performance in the coming months, that's OK. Supermicro still has what it takes to deliver earnings growth and share performance over the long term, and that's great news for investors today.

Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool recommends Intel and recommends the following options: long January 2025 $45 calls on Intel and short August 2024 $35 calls on Intel. The Motley Fool has a disclosure policy .