S&P 500 newcomer

Super Micro Computer (NASDAQ:SMCI) is among the biggest winners of the AI boom, benefiting significantly from the surging demand for high-performance computing infrastructure. The stock’s up over 1,000% in 18 months and recently entered the S&P 500.

Simply, the company designs and manufactures high-performance computer servers and storage systems. These products are used in data centres, cloud computing, and AI applications to handle large amounts of data quickly and efficiently.

Super Micro has also benefitted from partnerships with AI kingpin Nvidia. The companies have actually had a partnership for three decades, with Super Micro designing its servers to get the most out of Nvidia-designed chips.

The recent pullback in the share price could represent an opportunity for eagle-eyed investors to grab a chunk of this AI winner.

At $770 per share, it’s trading at a considerable discount to the average share price target, which currently sits at $1,097. That’s a 42.7% discount.

The data backs up this discount. Super Micro is trading with a forward price-to-earnings (P/E) ratio of 32.4 times, and a price-to-earnings-to-growth (PEG) ratio of 0.69. This PEG ratio infers a significant undervaluation.

The biggest risk is that these forecasts aren’t met. Super Micro is leading the industry, but it’s a fast-moving sector and competition could come from several angles. In turn, this would impact future earnings.

Small-cap winner

Sterling Infrastructure (NASDAQ:STRL) is a small-cap winner from the AI/data centre revolution, capitalising on the rapid expansion of digital infrastructure. The stock’s up 125.5% over 12 months, but recently pulled back from highs around $130 a share.

As the demand for data processing and storage surges due to advancements in AI, cloud computing, and big data, Sterling Infrastructure has positioned itself to benefit from these trends.

While Sterling engages in a wide range of construction projects, from new roads to parking structures, data centres now represent 40% of the company’s significant backlog.

As of 31 March, management said the $2.42bn backlog equated to 16 months of revenue.

From a value perspective, the stock’s currently trading around 15% below its share price target and has a P/E ratio around 21 times. To me, this looks pretty attractive, given its growth prospects.

As with Super Micro, the only concern is that forecasts aren’t met. Some analysts have argued that the huge spending we’re currently seeing on AI chips and data centres is front-loading, and that demand will be more modest from 2025 onwards.

Nonetheless, there’s little sign that the sector’s slowing. And with a backlog equating to 16 months of revenue, Sterling has a solid foundation to sustain its growth momentum and great visibility on future earnings.

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