Investing

Best Growth Stocks to Buy: Super Micro Computer vs GigaCloud Technology

Chris MacDonald

Published: June 19, 2024 11:05 am

24/7 Insights:

• A range of AI-related stocks are seeing mixed price performance in the market, with the overall trend being higher.
• Super Micro Computer is among the leading AI stocks investors are focusing on for large-cap growth.
• In the smaller-cap realm, GigaCloud Technology is seeing increased interest of late.

Companies with ties to the artificial intelligence, cloud computing, and other high-tech growth trends are seeing market-beating performance. There’s an earth-shattering statement investors can take away from this piece, if there is one.

But within the high-growth areas of the market investors are seeing the best returns, it’s also true that this share price growth and valuation expansion isn’t exclusive to companies of certain sizes. While investors may be used to seeing rapid share price appreciation from smaller-cap names (with mega-cap stocks largely too big to benefit from such trends), Nvidia’s (NASDAQ: NVDA) existence, for example, speaks to just how well mega-cap AI stocks can perform in this environment.

Super Micro Computer (NASDAQ: SMCI) is a stock I’d lump into this large-cap bucket. The server and storage systems provider has seen incredible growth in recent quarters, and even more incredible forward growth expectations built into its stock price, as a direct result of AI trends. If we do see the sort of data growth everyone expects from vast adoption of AI applications, we’re going to need servers and storage capabilities, and a lot of it. Super Micro is among the best ways to play this trend.

However, there are plenty of other smaller-cap companies that benefit from similar secular growth trends. GigaCloud Technology (NASDAQ: GCT) is one company with its own unique set of tailwinds, but is also a company that’s much smaller, with a market capitalization around $1.2 billion at the time of writing. The company’s end-to-end business-to-business solutions for payments and logistics (tied to the fast-growing e-commerce space) continues to attract investors. The e-commerce sector is one with strong secular tailwinds, but is also one that’s seen some fall-off recently, as so much attention is directed toward AI.

Let’s dive into these unique companies, and which may be the better stock to buy right now.

Buy Super Micro for AI Exposure

The clear winner for investors seeking AI exposure in this current environment would be Super Micro. The company’s server and storage solutions are unparalleled in this space. And while the company has competitors, its sheer size and scale is worthy of consideration.

The company develops and manufactures a range of complete server solutions, storage systems, workstations, blades, full racks, server sub-systems and more. If we’re going to see the artificial intelligence-driven future many expect, we’re going to need a lot more of what Super Micro provides.

the company’s physical hardware is accompanied by some rather impressive software management solutions. These solutions span the gamut, from applications allowing users to nagigate the cloud, to power management and server management software. These are the higher-margin segments investors look to when assessing whether SMCI stock is a buy right now.

To be sure, SMCI stock isn’t cheap. Currently, this stock trades at a trailing price-earnings multiple of 47-times. However, looking a year out, the company’s forward price-earnings multiple of 23-times seems not only reasonable, but perhaps (dare I say) cheap. It all depends how far out on the curve an individual investor is willing to go, and how far down the road one wants to look. But within the AI race, aside from Nvidia, there’s a reason why Super Micro is among the most hyped-up stocks growth investors are getting all bulled up on.

GigaCloud Technology: The E-Commerce Future?

The e-commerce space is a much more difficult sector to truly assess. Pandemic-related tailwinds propelled companies in this sector to new highs, before pulling the rug out as the comps were obviously too rosy.

For China-based GigaCloud Technology, however, the company never really saw that. That’s because GCT stock went public in mid-2022, after most of the pandemic-related selloff had abated in this sector. And after raising around $40 million at a valuation of $486 million, this is a stock that’s proven to be a worthwhile investment for those who got in early (and roughly tripled their money in less than two years).

There’s a reason for this. The company’s GigaCloud marketplace allows sellers to utilize sophisticated logistics tools, and allows resellers in Western markets like the U.S. to connect with Chinese buyers. This is a model that’s certainly benefited importers, and one that only appears to be picking up steam.

Now, this is a business model that’s not without risk. Both the Biden and potential incoming Trump Administrations have signaled they’re not keen on letting go of tariffs on Chinese imports (with both seeming to indicate that new tariffs could be on the horizon). Whether that’s good for the U.S. consumer is a whole other discussion, but that’s a real headwind for companies like GigaCloud.

That said, this is a company in a high-growth global sector that could continue to see strong uptake from investors, if market conditions cooperate.

The Verdict

In my view, Super Micro is definitely the winner between these two picks. I see many more headwinds for GigaCloud on the horizon. And while both companies have proven their status as top growth stocks in the market, I do think Super Micro’s longer-term growth outlook remains more robust.

Of course, the market could completely shift, and these AI tailwinds could turn into headwinds, if companies move away from this trend. But for now, I think the better bet is SMCI stock at its current valuation relative to its growth rate.