Better New S&P 500 Artificial Intelligence (AI) Buy: Super Micro Computer vs Palantir Technologies

The S&P 500 rebalances four times a year, admitting stocks that are powering today's economy -- and in recent reshuffles two potential artificial intelligence (AI) winners found a spot in the index. Super Micro Computer (NASDAQ: SMCI) joined the benchmark earlier this year, while Palantir Technologies (NYSE: PLTR) entered this fall.

Both of these players have seen earnings take off in recent quarters thanks to their positions in the high-growth area of AI. Analysts expect today's $200 billion AI market to reach more than $1 trillion by the end of the decade, so the good times may be far from over for these players. Considering this, which one makes the better new S&P 500 AI buy? Let's find out.

Image source: Getty Images.

The case for Supermicro

Supermicro is a behind-the-scenes powerhouse in the world of AI data centers. The company sells equipment critical to their operations, from workstations to servers. And Supermicro has become particularly successful thanks to the way it organizes its processes -- the company works hand-in-hand with major chip designers so it can immediately integrate their innovations into its products. So, for example, when Nvidia launches its new Blackwell chip this year -- customers will find it in Supermicro systems.

All of this has helped Supermicro's earnings to soar quarter after quarter as the AI boom accelerated. In the most recent quarter, Supermicro's revenue of $5.3 billion well surpassed its annual revenue as recently as in 2021. The company also has seen profit grow -- net income in the quarter rose 82% to $353 million. On top of this, Supermicro's expertise in direct liquid cooling technology could help it benefit from a new wave of growth in AI data centers.

That said, Supermicro faces some headwinds today. The Wall Street Journal recently reported that the Justice Department has launched a probe into Supermicro -- this follows a short report from Hindenburg Research alleging troubles at the company. Supermicro called the short report statements "false or inaccurate" and declined to comment on the Journal report. Even though Supermicro's response to the short report is reassuring, this news still could continue to weigh on the stock.

The case for Palantir

Palantir helps organizations, companies, and governments aggregate their data and make better use of it -- and these uses often can be game-changers for the client, saving time and money and even transforming the way a particular task is done.

In its earlier days, this 20-year-old company relied on government contracts for most of its revenue. But in recent times, businesses have discovered the value of Palantir's technology, and the commercial business has taken off.

For example, just four years ago, Palantir had 14 U.S. commercial customers, and today, it has nearly 300. This also is due to Palantir's integration of AI into its systems. The company launched its Artificial Intelligence Platform (AIP) last year and since has seen revenue and customer count soar.

In the recent quarter, U.S. commercial revenue advanced 55%, while U.S. commercial customer count climbed 83%. Government revenue continues to gain too, meaning both commercial and government businesses are driving growth at Palantir today. And the company delivered net income of $134 million, for the biggest quarterly profit in the company's history.

As more and more companies as well as the government aim to use AI to become more efficient, Palantir could benefit -- and this means the Palantir growth trends we've seen in recent times could be just getting started.

Supermicro or Palantir?

Both of these tech companies have proven their strengths in recent times, and their long-term prospects look bright. They are winning in the area of AI, and this should continue. Supermicro represents a much better bargain from a forward P/E perspective, though. The stock trades for 14x forward earnings estimates right now while Palantir trades for more than 100x.

But which stock to go for depends on your comfort with risk. Supermicro isn't the better buy for all investors right now due to the headwinds I mentioned above. Cautious investors may want to wait for further clarification on the matter before buying Supermicro -- and today opt for Palantir. For very aggressive investors, though, Supermicro, trading at today's dirt cheap valuation, could represent a big opportunity to get in on an AI giant for a mini price.

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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.