The application development software market is experiencing significant growth, driven by increasing demand for software solutions across various industries. This market includes a diverse range of tools and platforms that support the creation, testing, and deployment of applications for desktop, web, and mobile environments.
The global application development software market is expected to hit around $328.3 billion by 2032 and is poised to grow at a CAGR of 7.8% by 2032. Simultaneously, there is great demand for high-speed data connectivity. As there is rapid digitalization across the world, the global telecom services market is expected to grow significantly.
Against this backdrop, let’s compare two tech stocks, Super Micro Computer, Inc. (SMCI) and AppLovin Corporation (APP), to determine which is a better tech stock to own.
The Case for Super Micro Computer, Inc. Stock
With a $53 billion market cap, Super Micro Computer, Inc. (SMCI) develops and manufactures high-performance server and storage solutions based on modular and open architecture in the United States, Europe, Asia, and internationally.
SMCI’s stock has plunged 6.8% over the past three months to close the last trading session at $905.26.
On June 4, 2024, SMCI introduced a ready-to-deploy liquid-cooled AI data center, designed for cloud-native solutions that accelerate generative AI adoption for enterprises across industries with its SuperClusters, optimized for the NVIDIA AI Enterprise software platform for the development and deployment of generative AI.
SMCI’s forward non-GAAP PEG of 38.06x is 61.2% higher than the 23.61x industry average. Also, the stock’s forward EV/EBITDA of 31.55x is 114.8% higher than the industry average of 14.69x. In terms of forward EV/Sales, it is trading at 3.54x, 19.2% higher than the industry average of 2.97x.
In the fiscal third quarter that ended March 31, 2024, SMCI’s net sales were reported at $1.19 billion, while its non-GAAP gross profit stood at $600.59 million. Moreover, its non-GAAP net income was $411.53 million, and non-GAAP net income per common share was $6.65.
SMCI has a trailing-12-month levered FCF margin of negative 18.65%, while its trailing-12-month gross profit margin of 15.97% is 67.9% lower than the industry average of 49.69%.
SMCI’s weak fundamentals are reflected in its POWR Ratings. The stock has an overall D rating, equating to Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
The stock has an F grade for Value and Stability and a D for Quality. Within the Technology - Communication/Networking industry, SMCI is ranked #39 out of 45 stocks.
In addition to the POWR Ratings I’ve just highlighted, you can see SMCI’s ratings for Growth, Momentum, and Sentiment here.
The Case for AppLovin Corporation Stock
Valued at $25.85 billion by market cap, AppLovin Corporation (APP) builds a software-based platform for advertisers to enhance the marketing and monetization of their content in the United States and internationally. It operates through two segments: Software Platform and Apps.
APP’s stock has gained 9.3% over the past three months to close the last trading session at $78.58.
APP’s forward non-GAAP P/E of 14.59x is 38.2% lower than the 23.61x industry average. Also, the stock’s forward EV/EBIT of 20.20x is 1.1% lower than the industry average of 20.42x. In terms of forward EV/EVITDA, it is trading at 12.65x, 13.9% lower than the industry average of 14.69x.
For the first quarter that ended March 31, 2024, APP’s revenue increased 47.9% year-over-year to $1.06 billion. Its income from operations grew 456.2% year-over-year to $339.56 million. Its net income came in at $236.18 million, compared to a loss of $4.52 million in the previous-year quarter.
Also, its net income per share came in at $0.70, compared to loss per share of $0.01 in the previous-year quarter.
Street expects APP’s revenue for the second quarter ending June 2024 to increase 44% year-over-year to $1.08 billion. Its EPS is expected to grow 230% year-over-year to $0.73. Moreover, the company has surpassed EPS estimates in each of the trailing four quarters.
APP’s POWR Ratings reflect its robust outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
APP has an A grade for Quality and Growth. It is ranked #23 in the 134-stock Software - Application industry.
Click here for the additional POWR Ratings for APP (Value, Stability, Sentiment, and Momentum).
Super Micro Computer (SMCI) vs. Applovin (APP): Which Tech Stock Should You Buy Now?
The tech industry thrives as customers are increasingly seeking technology solutions that can help them improve their business operations and increase efficiency. Moreover, with the surging demand for digital solutions spanning numerous industries, this market is experiencing notable growth.
Leading tech companies SMCI and APP stand to capitalize on bright industry growth prospects. However, APP’s lower valuation favor it as the better TECH stock pick.
Our research shows that the odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Technology - Communication/Networking industry here and Software - Application industry here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
SMCI shares were trading at $839.42 per share on Monday afternoon, down $65.84 (-7.27%). Year-to-date, SMCI has gained 195.30%, versus a 14.84% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
The post Super Micro Computer (SMCI) vs. AppLovin (APP): Which Tech Stock Should You Buy Now? appeared first on StockNews.com