Super Micro Computer(NASDAQ: SMCI) and Palantir Technologies(NYSE: PLTR) both have delivered significant gains to investors this year. Supermicro soared 188% in the first half, even surpassing the performance of market darling Nvidia. It's since pulled back but still is heading for a 60% increase this year and a 2,100% climb over the past five years. Palantir is on its way to an increase of almost 150% this year and is trading at a record high.
Both of these technology stocks have shown financial strength in recent times thanks to their growth in the high-potential area of artificial intelligence (AI). Supermicro this year reported quarterly revenue that surpassed an entire year of revenue as recently as 2021. And Palantir's net income in the latest quarter marked its biggest quarterly profit ever.
These companies aren't new to the scene -- Supermicro is more than 30 years old, while Palantir has been around for about 20 years -- and throughout that time they've built a track record of growth. But things have truly taken off for both of them with the AI boom. Now, should you buy Supermicro or Palantir? Let's find out more about each one and then see what Wall Street has to say.
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The case for Super Micro Computer
Supermicro is a behind-the-scenes star in the AI world. The company makes equipment essential for the successful operations of data centers -- elements such as workstations and servers. Supermicro's strategy of using many common parts as building blocks for its products helps it speedily bring tailor-made equipment to its customers. The tech powerhouse also works closely with top chip designers so that it can immediately integrate their innovations into its products -- and this ensures quick delivery too.
This has helped Supermicro register a five times faster growth rate than its industry over the past 12 months. And Supermicro has two key growth drivers ahead: the development of direct liquid cooling (DLC) for data centers and the opening of a new production facility in Malaysia.
DLC solves one of the biggest problems of AI data centers -- the buildup of heat. Supermicro predicts 25% to 30% of new data centers in the coming 12 months will use DLC, and the company expects to dominate that market. And the new Malaysia facility should boost Supermicro's margins as it focuses on high volume and lower cost.
So, what's weighed on the stock recently? A short report in August alleged troubles at the company, and a few weeks later, The Wall Street Journal reported the Justice Department is investigating Supermicro. The company called the short report comments "false or inaccurate" and didn't comment on the WSJ article. But these elements may continue to limit gains until completely resolved.
The case for Palantir Technologies
Palantir is in the data business. The software player helps customers aggregate all of their data and make the best possible use of it. Often, this can produce game-changing results, allowing a customer to significantly boost efficiency, launch new products or services, or change the way they go about their daily business.
In the past, Palantir was most known for its contracts with governments, but in recent times a major new growth customer has emerged: the commercial customer. Business to governments continues to expand but not as fast as the commercial business. In the most recent quarter, government revenue climbed 23%, while U.S. commercial revenue surged 55%. And U.S. commercial customer count now has reached almost 300 -- up from only 14 about four years ago.
Customers are flocking to Palantir for its Artificial Intelligence Platform (AIP), a system introduced last year that harnesses the power of AI to turn data into a key tool for businesses and governments. Palantir introduces potential customers to the service through bootcamps, and this strategy has been highly successful -- often resulting in contracts for the service signed days after a bootcamp.
The technology company, having recently launched AIP and noting enormous demand for the platform, could be in the very early days of this growth story -- even though Palantir has been around for years.
What does Wall Street say, and should you follow?
Only one of these top stocks today is a buy, according to Wall Street. And that player is Supermicro, with a buy as the average analyst recommendation. And the average price forecast for the coming 12 months calls for a 69% gain.
As for Palantir, Wall Street advises holding the stock and expects it to fall 32% over the coming 12 months.
Valuation is one reason to favor Supermicro over Palantir. Supermicro trades at dirt cheap levels today compared with Palantir's sky high price in relation to forward earnings estimates.
Does this mean you should buy Supermicro instead of Palantir? Not necessarily. Both stocks make interesting long-term investments, but your decision right now depends on your comfort with risk. Supermicro, considering the current headwinds, may be best left to aggressive investors for the moment.
Palantir is pricey, but for investors willing to hold on for a number of years, it may be worth picking up a few shares -- earnings and share price still have room to run over the long haul.
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Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia and Palantir Technologies. The Motley Fool has a disclosure policy.
