Super Micro Computer (NASDAQ: SMCI) split its shares this month and now they are trading at one-tenth of what they were before the split. For investors, that means a lower share price, and perhaps the ability to own more full shares. Stock splits can sometimes have positive effects on the share price even though they don’t fundamentally change anything about a company’s prospects or improve its earnings numbers.

With shares of Super Micro Computer, also known as just Supermicro, down more than 50% in just the past six months, could the recent split provide the stock a boost, and potentially help stop its tailspin?

Why a stock split may not help Supermicro

A stock split doesn’t solve any problems for a business. Regardless of whether Supermicro stock is trading at $450 or $45, investors can buy fractional shares if they want to invest in it but don’t have the funds necessary to acquire entire shares of the company. And that’s why stock splits normally shouldn’t lead to a rally in the share price; they don’t change valuation multiples to make the stock a better buy.

Some investors may believe that because a stock is priced lower, it’s cheaper and a better buy, but that is a mistake. When talking about valuation, you should always look at per-share earnings and revenue multiples, which take into context the share price. And stock splits don’t change those multiples.

Stock splits can become positive catalysts if a stock rises significantly in value and then a company opts to do a split. In Supermicro’s case, however, the stock has been crashing of late, and its stock split comes at a time when there’s a lot of negativity and bearishness around the business, which is why a split may not have a positive effect on its share price.

Supermicro’s problems have nothing to do with its share price

For Supermicro, there are much larger concerns for investors than its share price being too high. The company’s margins have been under pressure and the Department of Justice (DOJ) is reportedly looking into the company after a short report in August alleged the company was involved in questionable accounting practices. Management has denied any wrongdoing and the DOJ investigation may not necessarily lead to anything substantive and consequential for the business and its investors.

The bigger issue, however, is that the company’s earnings may not grow at a high rate if Supermicro’s margins don’t improve. In its most recent earnings report, for the quarter ended June 30, the company’s gross margin was just 11%, down from an already fairly low rate of 17% a year ago. Low margins can negate much of the benefit the tech company will get from generating strong server sales and growing its operations, and that’s the biggest reason I’d be concerned about the stock right now.

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Is Supermicro stock a buy?

I don’t believe a stock split is going to save Supermicro stock nor do I think the DOJ probe is going to cripple it. Short reports are often biased and meritless and while they can temporarily send a stock lower, they rarely uncover disastrous findings auditors, analysts, and investors have all missed.

The company can put a lot of concerns to rest by simply posting strong earnings numbers and showing that it can grow both its top and bottom lines at high rates. But it still has to prove that it can do that.

Unless you’re comfortable with the risk that comes with owning Supermicro stock today, the safest option is to take a wait-and-see approach right now. The biggest question mark around the business remains its ability to grow its earnings, because if it can’t do that, it’s going to be hard to justify buying the AI stock.

Don’t miss this second chance at a potentially lucrative opportunity

Ever feel like you missed the boat in buying the most successful stocks? Then you’ll want to hear this.

On rare occasions, our expert team of analysts issues a “Double Down” stock recommendation for companies that they think are about to pop. If you’re worried you’ve already missed your chance to invest, now is the best time to buy before it’s too late. And the numbers speak for themselves:

• Amazon: if you invested $1,000 when we doubled down in 2010, you’d have $21,266!*

• Apple: if you invested $1,000 when we doubled down in 2008, you’d have $43,047!*

• Netflix: if you invested $1,000 when we doubled down in 2004, you’d have $389,794!*

Right now, we’re issuing “Double Down” alerts for three incredible companies, and there may not be another chance like this anytime soon.

See 3 “Double Down” stocks »

*Stock Advisor returns as of October 7, 2024

David Jagielski has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Will Super Micro Computer’s Stock Split Help Rally Its Shares? was originally published by The Motley Fool

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Nvidia (NASDAQ: NVDA) has been one of the best-performing stocks on the market over the past two years, and the catalysts that drove it higher are still present. But after its strong run-up, is Nvidia stock still a smart buy at its current level, or would those who hold shares be advised to sell and take some profits?

There are valid arguments for both views.

The sell argument: How long will this demand wave last?

Nvidia’s rise has been directly tied to the artificial intelligence (AI) arms race. Its primary products are graphics processing units (GPUs) — parallel processors that excel at handling large and complex computing tasks that are easily broken down into many smaller ones that can be handled independently and simultaneously. Connect GPUs in clusters and you end up with a computing platform that can process certain types of incredibly complex workloads at blistering speeds — and these are just the sorts of workloads that AI systems create.

As AI companies and cloud computing providers rushed to get in front of the emerging demand for processing power, Nvidia’s sales went through the roof. In the past couple of years, quarterly revenues have often tripled on a year-over-year basis. However, its stellar growth is starting to slow slightly due to tougher annualized comparisons. This growth slowdown makes sense, but the bigger question is, can Nvidia maintain its overall sales at these levels?

Because companies are buying these GPUs to rapidly build their AI computing capacity, there is going to be a time when the demand will be satisfied. At that point, Nvidia’s sales may crater, as companies will only be buying replacement GPUs or making gradual capacity increases. This could be a huge problem for Nvidia, as its revenue levels in its latest quarters are far above where they have been in the past.

This also highlights the cyclical nature of the chip business. Nvidia has gone through multiple boom-and-bust cycles in its life as a company. If AI-related demand wanes, investors could be in a rough spot.

But has Nvidia built up enough of a sales base to compensate for that cyclicality?

The buy argument: New technology will spur further demand past 2025

GPUs don’t last forever. They generally need to be replaced after about three to five years, which means that if the companies that have been building out their computing infrastructure recently want to maintain that processing power over the long term, they will have to regularly fork out massive chunks of money on new hardware.

We’re two years into the AI build-out already, and many companies are still scaling up their AI computing power, so 2025 will be another year of strong demand. That gets investors to 2026, at which point the natural replacement cycle starts for the GPUs that were purchased at the start of the generative AI era. But there could also be more reasons for companies to upgrade.

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First, the semiconductor chips within these Nvidia GPUs are produced by Taiwan Semiconductor Manufacturing (NYSE: TSM). Taiwan Semi is always innovating on the process node front, allowing chip designers like Nvidia to create denser, higher-performance chips.

TSMC expects that its chips built using its next-generation N2 process node will be 25% to 30% more power efficient than prior-generation chips when configured at the same speeds. Energy costs are a huge operating expense for server farms, so some customers may choose to upgrade for that reason, regardless of whether they need more computing power or not. The N2 manufacturing lines aren’t expected to start production until 2025, which likely means Nvidia GPUs built on them won’t make their way to its customers in quantity until 2026.

Meanwhile, Nvidia is just launching its Blackwell architecture GPUs, which will replace the Hopper architecture upon which it has built its current top-of-the-line chips, and the improvements are astounding. Blackwell’s architecture is four times faster than Hopper’s, allowing AI companies to create more complex models faster.

The combination of all these factors points to demand remaining strong well past 2026. In other words, the market probably isn’t peaking any time soon. This is key, as Nvidia’s forward price-to-earnings ratio has already reached levels that are starting to look reasonable, at least relative to how fast it’s growing.

Trading at 45 times forward earnings, Nvidia stock is far from cheap, but it’s putting up strong growth, so this valuation is acceptable.

Investors’ decisions about whether to buy or sell Nvidia stock today should be based on how they expect the company’s business to be faring in 2026 and beyond. There are enough catalysts out there that Nvidia’s growth should last far beyond 2026, and with the upgrade cycle, it should be able to maintain its newfound revenue levels.

As a result, I think Nvidia’s buy case is greater than its sell case today.

Don’t miss this second chance at a potentially lucrative opportunity

Ever feel like you missed the boat in buying the most successful stocks? Then you’ll want to hear this.

On rare occasions, our expert team of analysts issues a “Double Down” stock recommendation for companies that they think are about to pop. If you’re worried you’ve already missed your chance to invest, now is the best time to buy before it’s too late. And the numbers speak for themselves:

• Amazon: if you invested $1,000 when we doubled down in 2010, you’d have $21,266!*

• Apple: if you invested $1,000 when we doubled down in 2008, you’d have $43,047!*

• Netflix: if you invested $1,000 when we doubled down in 2004, you’d have $389,794!*

Right now, we’re issuing “Double Down” alerts for three incredible companies, and there may not be another chance like this anytime soon.

See 3 “Double Down” stocks »

*Stock Advisor returns as of October 7, 2024

Keithen Drury has positions in Taiwan Semiconductor Manufacturing. The Motley Fool has positions in and recommends Nvidia and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.

Should You Buy or Sell Nvidia Stock? was originally published by The Motley Fool

The artificial intelligence chipmaker Nvidia (NASDAQ: NVDA) has amassed close to a $3.2 trillion market cap, making it one of the world’s largest chipmakers. It now consumes more than 6% of the broader benchmark S&P 500 index. Over the last five years, Nvidia has grown annual revenue by 458% and the stock is up an incredible 2,009%. Given the potential for AI to disrupt life as we know it, it’s understandable that investors are so excited about the stock.

But the lure of these kinds of gains is naturally going to attract competition. Now, one of Nvidia’s competitors is planning an initial public offering (IPO) and claiming to manufacture chips that can vastly outperform Nvidia at a fraction of the price. Let’s take a look.

20x better than Nvidia?

Last week, the AI chipmaker Cerebras filed its registration statement with the Securities and Exchange Commission (SEC) with the intent to go public. In a press release from 2021, Cerebras said it had a valuation of $4 billion after a $250 million series F financing round. The company is targeting a $1 billion IPO at a $7 billion to $8 billion valuation.

In its registration statement, Cerebras cites Nvidia as a competitor, as well as other large AI companies such as Advanced Micro Devices, Intel, Microsoft, and Alphabet. Here is a description of what Cerebras does:

Cerebras’ pitch is that bigger is better. That’s because the company has designed a chip that is the size of a full silicon wafer, and the largest ever sold. The company believes that the size advantage leads to less time moving data. Furthermore, Cerebras has a flexible business model in which clients can buy Cerebras products to have at their facilities or through a consumption-based subscription through the company’s cloud infrastructure.

Cerebras clearly wants investors to compare, or at least associate, the company with Nvidia. Nvidia is mentioned 12 times in the registration statement. Cerebras also provides a side-by-side comparison of its Wafer-Scale Engine-3 chip versus Nvidia’s H100 graphics processing unit (GPU), which is considered the most powerful GPU on the market.

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Cerebras CEO Andrew Feldman publicly said the company’s inference offering is 20 times faster than Nvidia’s at a fraction of the price. In 2023, Cerebras generated about $78.7 million of revenue, up 220% year over year. Through the first half of 2024, Cerebras has grown revenue to $136.4 million. The company still hasn’t earned a profit, having reported a nearly $67 million loss through the first half of 2024. These numbers also pale in comparison to Nvidia, which recently reported second-quarter revenue of $30 billion and a profit of roughly $16.6 billion.

Will Cerebras make a splash?

With big publicity from news publications and claims of being 20 times faster than Nvidia, I think it’s safe to say that Cerebras already has and will continue to make a splash.

Depending on the excitement investment bankers can drum up during the company’s road show and market conditions, I wouldn’t be surprised to see Cerebras go public at a higher valuation than expected. AI has been all the buzz and the IPO market has been flat for a few years now, so there could be pent-up demand on Wall Street.

Will Cerebras overtake Nvidia? Only time will tell. Its product offerings are impressive, but it still has a ways to go to get its financial profile in line with Nvidia. Furthermore, there may be some advantages to Nvidia having smaller chips and it remains to be seen whether Cerebras can compete with Nvidia’s software language CUDA — although the company does say that its software program “eliminates the need for low-level programming in CUDA.”

While everything sounds great, there is likely still a “show me” component to this story. After all, the bulk of Cerebras’ revenue comes from one customer. Nvidia also has a leading market share in the AI chip space and relationships with many large clients. Who’s to say Nvidia couldn’t use its size — and likely resource — advantage to develop a similar large wafer chip? There’s a lot left to play out, but this could be one of the more interesting developments for market watchers to pay attention to.

Don’t miss this second chance at a potentially lucrative opportunity

Ever feel like you missed the boat in buying the most successful stocks? Then you’ll want to hear this.

On rare occasions, our expert team of analysts issues a “Double Down” stock recommendation for companies that they think are about to pop. If you’re worried you’ve already missed your chance to invest, now is the best time to buy before it’s too late. And the numbers speak for themselves:

• Amazon: if you invested $1,000 when we doubled down in 2010, you’d have $21,266!*

• Apple: if you invested $1,000 when we doubled down in 2008, you’d have $43,047!*

• Netflix: if you invested $1,000 when we doubled down in 2004, you’d have $389,794!*

Right now, we’re issuing “Double Down” alerts for three incredible companies, and there may not be another chance like this anytime soon.

See 3 “Double Down” stocks »

*Stock Advisor returns as of October 7, 2024

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Microsoft, and Nvidia. The Motley Fool recommends Intel and recommends the following options: long January 2026 $395 calls on Microsoft, short January 2026 $405 calls on Microsoft, and short November 2024 $24 calls on Intel. The Motley Fool has a disclosure policy.

The Newest Artificial Intelligence Stock Has Arrived — and It Claims to Make Chips That Are 20x Faster Than Nvidia was originally published by The Motley Fool

On some levels, Advanced Micro Devices (NASDAQ: AMD) looks increasingly like a competitor to Nvidia in the artificial intelligence (AI) accelerator market. While almost everyone perceives Nvidia as the dominant player in this market, AMD raised some eyebrows by winning a contract from Oracle.

Still, for all these accolades, AMD is barely profitable, and its revenue growth rate remains mired in the single digits. Also, despite the Oracle contract, AMD is not yet in Nvidia’s league regarding AI accelerators.

Nonetheless, one AMD metric has shown a dramatic improvement. As that figure continues to grow, the semiconductor stock could take its place as a full-fledged Nvidia competitor in the AI accelerator market.

Where investors should look

The important figure is not so much data center revenue as it is data center revenue as a percentage of total revenue. Here’s why: In the second quarter of 2024, AMD’s revenue of $5.8 billion grew by only 9% yearly. But this figure is deceiving. Gaming revenue dropped 59%, while embedded revenue fell 41%.

However, data center revenue, the segment designing AI accelerators, was up 115%! This is significant because Nvidia’s data center revenue was 88% of the company’s total in the latest quarter. Three years ago, it was not Nvidia’s largest revenue source. Now, the same pattern seems to have appeared in AMD’s financials.

In Q2, the data center was 49% of AMD’s revenue, up from only 25% one year ago. Assuming it is going to follow in Nvidia’s footsteps, AMD’s data center revenue appears on track to continue growing rapidly.

Furthermore, the chip industry is cyclical, meaning the gaming and embedded segments are unlikely to experience revenue declines comparable to the ones over the last year. Both factors should mean that AMD’s overall revenue — and, by extension, net income — are likely to experience dramatic surges, helping to draw more investors into AMD.

Ultimately, market leadership for AMD is unlikely anytime soon. However, as long as the data center segment continues to grow as a percentage of the company’s revenue, it should take its stock dramatically higher.

Don’t miss this second chance at a potentially lucrative opportunity

Ever feel like you missed the boat in buying the most successful stocks? Then you’ll want to hear this.

On rare occasions, our expert team of analysts issues a “Double Down” stock recommendation for companies that they think are about to pop. If you’re worried you’ve already missed your chance to invest, now is the best time to buy before it’s too late. And the numbers speak for themselves:

Story continues

• Amazon: if you invested $1,000 when we doubled down in 2010, you’d have $21,266!*

• Apple: if you invested $1,000 when we doubled down in 2008, you’d have $43,047!*

• Netflix: if you invested $1,000 when we doubled down in 2004, you’d have $389,794!*

Right now, we’re issuing “Double Down” alerts for three incredible companies, and there may not be another chance like this anytime soon.

See 3 “Double Down” stocks »

*Stock Advisor returns as of October 7, 2024

Will Healy has positions in Advanced Micro Devices. The Motley Fool has positions in and recommends Advanced Micro Devices, Nvidia, and Oracle. The Motley Fool has a disclosure policy.

Every AMD Stock Investor Should Keep an Eye on This Number was originally published by The Motley Fool