Nvidia has led the S&P 500 (SNPINDEX: ^GSPC) higher this year amid frenetic interest in artificial intelligence (AI). The stock has surged 136% since January, and Wall Street analysts forecast median upside of 30% from the current share price of $115. But betting on a single AI stock is a bad strategy.

Consultancy PwC estimates AI will add more than $15 trillion to the global economy by 2030, and numerous companies will benefit as the technology diffuses through different industries. So, rather than focusing solely on Nvidia, investors should forget the chipmaker (temporarily) and consider server maker Super Micro Computer (NASDAQ: SMCI).

Super Micro has a 10-for-1 stock split scheduled for late September, such that shares will begin trading on a split-adjusted basis on Oct. 1. Two analysts, Nehal Chokshi at Northland Securities and Hans Mosesmann at Rosenblatt Securities, value Super Micro at $1,300 per share, implying 195% upside from its current share price of $440.

Here’s what investors should know.

Super Micro Computer is the market leader in AI servers

Super Micro develops accelerated computing platforms, including storage systems and servers, for enterprise and cloud data centers. Its portfolio includes individual devices, and full server racks optimized for workloads like data analytics and artificial intelligence (AI). What sets Super Micro apart are its internal manufacturing capabilities and its modular approach to product development.

Specifically, the company uses electronic “building blocks” that can quickly be assembled into a broad range of servers. It also handles most assembly and testing at internal facilities to enable rapid prototyping and product releases. That usually allows Super Micro to bring new technologies to market two to six months before its competitors, according to CEO Charles Liang.

Hans Mosesmann highlighted that advantage in a note earlier this year. “Super Micro has developed a model that is very, very quick to market. They usually have the widest portfolio of products when a new product comes out from Nvidia or AMD or Intel.” That advantage has helped Super Micro secure a leadership position in the AI server market.

That puts the company in an enviable position. Statista estimates AI server sales will grow at 30% annually through 2033 as businesses build out their AI infrastructure. If Super Micro can maintain its time-to-market advantage, its revenue and earnings could increase at a similar pace over the next decade.

Super Micro shares have fallen sharply on subpar financial results and a scathing short report

Super Micro reported mixed financial results in the fourth quarter of fiscal 2024 (ended June 2024). Revenue increased 144% to $5.3 billion, but gross margin contracted almost six percentage points to 11.2% and non-GAAP earnings increased 78% to $6.25 per diluted share. Investors interpreted weak margins has proof of increased competition in the AI server market.

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However, management attributed the issue to costs associated with direct liquid cooling (DLC) components. Importantly, the company expects gross margin to normalize between 14% and 17% before the end of fiscal 2025 as DLC solutions ship in higher volume. Moreover, investments in DLC solutions could strengthen Super Micro’s position in the AI server market. Liquid cooling is more efficient than traditional air cooling, and it will become increasingly important as AI servers become more powerful.

Even so, the stock tumbled 20% following the fourth-quarter report due to concerns about contracting margins. And shares moved even lower in late August when short-seller Hindenburg Research targeted Super Micro with allegations of “glaring accounting red flags, evidence of undisclosed related party transactions, sanctions and export control failures and customer issues.” Shortly thereafter, Super Micro delayed filing its Form 10-K and several analysts downgraded the stock due to uncertainty arising from the situation.

However, CEO Charles Liang dismissed the Hindenburg report as containing “false or inaccurate statements about our company including misleading presentations of information that we have previous shared publicly.” He also wrote, “We don’t anticipate any material changes in our fourth quarter or fiscal year 2024 financial results. This is good news. I continue to have strong confidence in our finance and internal teams.”

Investors should stay informed on the situation. In the past, Hindenburg has uncovered serious wrongdoing at certain companies, but other times its reports have ultimately been inconsequential. Either way, the allegations make the stock risky right now, despite being down 63% from its high.

Super Micro stock is trading at a bargain price, but only for risk-tolerant investors

Wall Street expects Super Micro’s adjusted earnings to grow at 41% annually through fiscal 2026 (ends June 2026). That makes the current valuation of 20 times earnings look cheap. Those figures give a PEG ratio of 0.5, a material discount to the three-year average of 0.9. But Super Micro stock also looks cheap compared to rival server maker Dell Technologies, which has a PEG ratio 1.7.

Personally, I think risk tolerant investors should consider buying a small position in Super Micro today. The stock could rebound in a big way if the short report amounts to nothing and the company’s gross margin expands in the coming quarters. That said, shares could decline much further if either of those situations go the wrong way.

Should you invest $1,000 in Super Micro Computer right now?

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Trevor Jennewine has positions in Nvidia. The Motley Fool has positions in and recommends Advanced Micro Devices and Nvidia. The Motley Fool recommends Intel and recommends the following options: short November 2024 $24 calls on Intel. The Motley Fool has a disclosure policy.

Forget Nvidia: 1 Stock-Split AI Stock to Buy Before It Soars 195%, According to Certain Wall Street Analysts was originally published by The Motley Fool