Key Points

• The artificial intelligence (AI) trend has been the driving force behind many top stocks' performance over the past five years.
• In September 2020, Nvidia already had a market cap of more than $340 billion and was trading at high valuations.
• Super Micro Computer was worth less than $2 billion at that time, but has outperformed the chipmaker in the years since.

It's hard to imagine that any stock may have performed better than Nvidia (NASDAQ: NVDA) over the past five years. The company has been a huge winner due to the artificial intelligence (AI) trend, as its chips provide the majority of the processing power used to develop, train, and operate AI models.

Today, Nvidia is the most valuable company in the world, with a market cap of around $4.3 trillion. It has come a long way, but what may surprise you is that since September 2020, it has only been the second-best performing stock on the S&P 500. The award for first place goes to Super Micro Computer (NASDAQ: SMCI), also known as Supermicro. (This is based on five-year returns as of Sept. 1, and does not include stocks that weren't public five years earlier.)

Supermicro's stock has rallied by more than 1,400% in five years

As of Sept. 1, shares of Supermicro were up by more than 1,400% over the prior five years. Those gains beat the nearly 1,200% return that Nvidia generated during the same stretch by a considerable margin. In terms of dollars, a $10,000 investment in Supermicro would have grown to be worth more than $153,000 today, while a similar investment in Nvidia would be worth $126,000.

Either way, you'd still be up big, but your gains would have been far higher with Supermicro. It's also noteworthy that those are its gains after a particularly drastic drop. In the early part of 2024, the tech company had a falling out with its auditor, and there were questions about the reliability of its financial reports. The stock plunged, and it's still down by around 60% from its peak. So if not for those headwinds, the gap between Nvidia and Supermicro's returns could be far greater.

Why a better return doesn't mean one business is better than another

There are countless examples in the stock market of companies with valuations that don't seem to make sense. Hype and excitement can send a company's shares soaring to unjustifiable levels. And an important factor to consider is market cap. Even five years ago, Nvidia was a well-established megacap business with a market cap of more than $340 billion. Supermicro, at that time, was still a small cap, with a market cap of just $1.4 billion. But its performance lifted it rapidly out of that realm. It was added to the mid-cap S&P 400 index in December 2022 and was promoted again to the large-cap S&P 500 in March 2024. Now, it's worth about $27 billion.

It's a lot easier for a small-cap stock to have a huge rally than a large-cap or a megacap stock. Supermicro was still a relatively unknown company back in 2020, but the AI-driven surge in demand for its servers and related tech products transformed its business and put it on the map. The AI trend helped Nvidia enormously as well, but because it was already so large and trading at a loftier price-to-earnings ratio, its growth was a bit more constrained, relatively speaking.

That being said, Nvidia has achieved some fantastic returns, both in the medium term and the long term. And at a price-to-earnings (P/E) multiple of 50, it's still trading at a hefty premium, while Supermicro may look more reasonably priced at a P/E ratio of 27.

Nvidia is still the safer growth stock to own, by a mile

Supermicro may have generated stronger returns than Nvidia over the past five years, but that doesn't mean that pattern will continue.  Supermicro's valuation is much higher today than it was five years ago, but its shares have risen by just 5% over the past 12 months. Investors appear to be taking a more cautious view of the stock, which is justifiable given Supermicro's low margins and limited profitability.

Nvidia has a more robust business, and over the past 12 months, its free cash flow has totaled an incredible $72 billion (compared to $1.5 billion for Supermicro). Given that Nvidia remains the clear leader in the AI chip space and still has tremendously strong financials, it looks like a far better and safer growth stock to own from here than Supermicro. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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Super Micro Computer (NASDAQ: SMCI) stock has gotten crushed over the last six months. Shares of the provider of server, storage, and coolant systems for the massive data center buildout have been cut in half during that time.

But the stock is still up by over 60% year to date from high demand as large technology companies work to quickly expand artificial intelligence (AI) computing capacity. This week, shares began to recover from the recent slump and were higher by about 13% as of Thursday afternoon, according to data provided by S&P Global Market Intelligence.

AI business is booming

After surging earlier in 2024, Supermicro shares began to sink after a report from short-seller Hindenburg Research claimed it found "glaring accounting red flags, evidence of undisclosed related party transactions, sanctions and export control failures, and customer issues." Hindenburg noted it had a short position in the stock. Shares plummeted further after Supermicro announced it was delaying the 10-K annual report filing for its fiscal 2024 year ended June 30.

But since then, CEO Charles Liang said in a letter to customers that the company doesn't anticipate any material changes to the previously released financial reports, and that the business remains on track. He assured customers that engineering, production, and sales of its large-scale AI solutions have not been affected.

In a follow-up to that this week, along with the company introducing a new liquid cooling product, it revealed that it was currently shipping Nvidia's GPUs (graphics processing units) at a rate of over 100,000 per quarter.

With Nvidia Blackwell chips reportedly expected to cost at least $30,000, that translates into billions in quarterly sales for Supermicro. That could mean Supermicro's revenue growth continues to outperform expectations in coming quarters. It's why investors jumped back into the stock this week, too.

But investors will also want to monitor profit margins. Gross profit margin of 11.2% dropped from 17% year over year in the fiscal Q4 period ended June 30. If that decline continues, this week's stock spike might not last.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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There are many ways to define "the fastest-growing" stocks. You can focus on market returns, sales growth, or profits, and you can look at proven results or future expectations. Traditionalists may prefer analysing reported results and historical market data. Growth-oriented investors can lean into forward-looking projections, based on rapid top-line growth or beefy long-term profit targets.

Today, I'm looking at the fastest-growing artificial intelligence (AI) stocks of the last three years, in terms of estimated revenue growth. This way, I'll zoom in on companies with plenty of business growth expected in the years ahead, no matter what they did in the early days of the generative AI boom.

So here are the top three names of that analysis, based on their top-line sales' expected compound annual growth rate (CAGR) in the next three years.

1. Nvidia: 50.4% estimated CAGR

It's no secret that semiconductor designer Nvidia (NASDAQ: NVDA) has grown like wildfire in recent years. Its trailing 3-year revenue growth stands at a spine-chilling CAGR of 63.8% at the moment. OpenAI introduced its groundbreaking ChatGPT system in November 2022. As the primary provider of AI accelerator hardware for that platform, Nvidia has enjoyed skyrocketing sales ever since.

And analysts see no end to that trend. Your average analyst firm expects Nvidia to deliver annual sales growth of roughly 50.4% over the next three years.

I agree that Nvidia should deliver strong sales growth in this AI boom. However, it gets harder and harder to maintain these skyrocketing growth rates as the base figure for each year-over-year comparison increases. Moreover, I'm not convinced that the analyst community gives enough respect to Nvidia's current and potential rivals. If nothing else, having plenty of high-powered AI accelerator chips available could limit Nvidia's gross profit margins over time.

So Nvidia looks overpriced to me, since Wall Street's growth targets seem a bit too optimistic. I cashed in some of my paper gains on this stock several months ago. Yet, the analysts might be right. I'd be kicking myself if Nvidia continues to dominate the AI hardware space and my portfolio had no connection to that opportunity. You should check your risk tolerance before backing away from Nvidia's soaring stock -- or doubling down on it.

2. Super Micro Computers: 36% estimated CAGR

Nvidia is the leading seller of AI accelerator chips, and Super Micro Computers (NASDAQ: SMCI) sells a ton of custom server systems using those chips. As a result, Supermicro's sales growth is trailing slightly behind Nvidia's. In an alternate universe where this was the only builder of AI servers, Supermicro could have shown growth equal to or even greater than Nvidia's.

In this world, Supermicro started this surge from a much lower revenue level than Nvidia, as is currently raising its long-term growth rate faster. Supermicro stands out in the system-building market with a combination of unique cooling solutions and relatively low system prices.

That being said, Supermicro's target market is even more fragmented than Nvidia's. Hewlett Packard Enterprise and Dell sell far more servers than Supermicro, even in the AI server niche. On the upside, this situation gives Supermicro more room to take market share from rivals, outgrowing its peers in the process. On the downside, the HPs and Dells out there won't simply stand back and let Supermicro win.

So this is another challenging growth target. At the same time, Supermicro comes with lofty valuation ratios for this subsector. As such, it's far from my favourite buying idea among AI stocks.

3. Cloudflare: 27.7% estimated CAGR

Finally, network security and performance specialist Cloudflare (NYSE: NET) trails behind Supermicro's revenue growth due to a significant slowdown in the last two years.

Cloudflare isn't a pure-play AI investment, but the company has strong ties to the emerging AI space. You can already buy AI-oriented edge computing services directly from Cloudflare, using its global network of servers and AI accelerators to deliver results near the end user. Its cybersecurity and network acceleration features are also quite valuable for AI service providers. For example, ChatGPT's services always pass through Cloudflare's content delivery and data security tools.

So Cloudflare is a serious AI investment with robust revenue growth. The company is also boosting its AI computing infrastructure over time. Meanwhile, Cloudflare recently revamped its sales department, boosting both its revenue growth per sales agent and operating margin.

The stock is far from cheap, but Cloudflare is perhaps the most convincing long-term growth story on this list. This company is pulling several levers to keep the growth fires burning, and the best chapters of Cloudflare's story may still be unwritten.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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