It may seem unbelievable that any stock could have outperformed Nvidia ( NVDA 0.35%) in the last five years. The company has been a standout beneficiary of the artificial intelligence (AI) boom, as its chips supply most of the computing power needed to create, train, and run AI models.
Currently, Nvidia holds the title of the world's most valuable company, boasting a market capitalization of about $4.3 trillion. Its rise has been remarkable, but what might surprise you is that since September 2020, it has actually been the second-best performing stock on the S&P 500. The top spot belongs to Super Micro Computer ( SMCI 0.05%), or Supermicro. (This ranking is based on five-year returns as of Sept. 1, excluding companies that were not publicly traded five years ago.)
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Supermicro’s shares have soared over 1,400% in five years
By Sept. 1, Supermicro’s stock had climbed more than 1,400% over the previous five years. That far outpaces Nvidia’s nearly 1,200% gain in the same period. To put it in perspective, a $10,000 investment in Supermicro would now be valued at more than $153,000, while the same amount in Nvidia would have grown to $126,000.
Both investments would have delivered impressive returns, but Supermicro’s performance would have left you with a much larger profit. It’s also worth noting that these results come after a significant decline. Earlier in 2024, Supermicro faced issues with its auditor, raising doubts about its financial statements. The stock tumbled and remains about 60% below its highest point. Without these setbacks, the difference between Nvidia and Supermicro’s returns could have been even more pronounced.
A higher return doesn’t always mean a better company
There are many cases in the stock market where a company’s valuation seems disconnected from reality. Hype and speculation can drive share prices to unsustainable heights. Market capitalization is also a key factor. Five years ago, Nvidia was already a massive company with a market cap exceeding $340 billion. Supermicro, on the other hand, was a small cap at just $1.4 billion. Its rapid growth propelled it out of that category, earning it a spot in the mid-cap S&P 400 index in December 2022, and then a promotion to the large-cap S&P 500 in March 2024. Today, its market value is around $27 billion.
It’s much simpler for a small-cap company to experience explosive growth compared to a large-cap or megacap firm. Back in 2020, Supermicro was still relatively obscure, but the surge in AI-related demand for its servers and technology products transformed its business and brought it into the spotlight. Nvidia also benefited greatly from the AI wave, but its already substantial size and higher price-to-earnings ratio meant its growth was somewhat more limited by comparison.
Nevertheless, Nvidia has delivered outstanding returns over both the medium and long term. With a price-to-earnings (P/E) ratio of 50, it remains highly valued, while Supermicro appears more modestly priced at a P/E of 27.
Nvidia remains the much safer growth stock choice
Although Supermicro has outperformed Nvidia in the last five years, that trend may not persist. Supermicro’s valuation is much higher now than it was five years ago, but its stock has only increased by 5% in the past year. Investors seem to be approaching the stock with more caution, which makes sense given Supermicro’s thin margins and limited profitability.
Nvidia, on the other hand, has a much stronger business foundation. Over the last year, its free cash flow reached an impressive $72 billion, compared to just $1.5 billion for Supermicro. As Nvidia continues to dominate the AI chip market and maintains exceptional financial strength, it stands out as a much safer and more attractive growth stock than Supermicro.
