This year has been an incredible one for many companies, especially technology players operating in the area of artificial intelligence (AI). They’ve led gains in all three indexes, from the S&P 500 and the Nasdaq to the Dow Jones Industrial Average. In fact, new Dow member Nvidia is heading for the top performance in that index this year thanks to its AI strengths.
Investors have piled into AI stocks because the technology promises to be revolutionary, marking history much like the development of the telephone or the Internet. Analysts expect today’s $200 billion AI market to top $1 trillion by the end of the decade, so companies and investors getting in on this area now could win big.
Still, not every AI company has reaped the rewards in recent times. Super Micro Computer(NASDAQ: SMCI) and Intel(NASDAQ: INTC) both have faced challenges in the past months, and this has weighed on their stock performance. Which one is a better recovery story buy for 2025? Let’s find out.
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Supermicro stock blasted higher in the first half of the year, gaining 188%. The company makes equipment such as servers and workstations, and demand from AI customers has been soaring. This has translated into triple-digit quarterly revenue growth.
But several pieces of news hurt Supermicro in the second half of the year. First, a short report by Hindenburg Research alleged troubles at the company. Then, Supermicro delayed the filing of its 10-K annual report and later the filing of its 10-Q quarterly report. Meanwhile, the company’s auditor resigned, and the late financial filings put it at risk for a Nasdaq delisting.
The stock tumbled 67% from the Hindenburg report to its lowest in mid-November. But brighter news emerged in recent weeks. Supermicro found a new auditor and submitted a plan to the Nasdaq to regain compliance — Nasdaq has since granted an extension to Feb. 25, and Supermicro says it expects to file by that time.
So, the worst could be behind Supermicro, setting it up for a potential recovery during 2025.
Intel dominates the market of central processing units (CPUs), the key processors that power most computers. But a few problems have weighed heavily on this tech giant. First, it’s losing market share to Advanced Micro Devices in the desktop CPU market. Second, Intel failed to get in early on the AI market, and though it’s come out with compelling products in recent quarters, it’s struggling to catch up to leaders.
On top of this, some investors worried about the investment involved in Intel’s decision to become a chipmaker, offering foundry services to not only itself but to rivals. Spending has had an impact on the company’s free cash flow in recent years.
Intel’s announcement of a $10 billion cost reduction program, including a plan to cut 15% of its workforce, didn’t reassure investors — and when it was announced in August, the stock sank 26% in one trading session.
Most recently, Intel ousted its chief executive officer Pat Gelsinger, naming two executives to share the role while the company searches for a permanent replacement.
Considering all of this, Intel is in a key period of transition now, meaning big changes may be ahead in 2025 and beyond.
Supermicro seems to be on the right path to recovery, but a key element is missing, and that’s the audited financial reports. Though Supermicro says it doesn’t expect any restatements, it’s important for investors to take a look at the company’s latest financial performance before making any investing decisions. And that’s why I would keep Supermicro on the watch list right now and hold off on buying the stock.
As for Intel, right now it’s impossible to know what direction the company will take because the interim leaders have just taken over — and we don’t yet know if they’ll make significant moves or maintain the status quo until a new CEO arrives. Will Intel continue with its plans to become a leading chipmaker? That decision alone, whether the answer is “yes” or “no,” could result in completely different outcomes for the company. Without visibility on Intel’s strategy, it’s impossible to make an informed investment decision.
So right now, I’ll say keep your eye on both of these companies in the new year. But for the moment, it’s too early to invest in either no matter how interesting their valuations may look. The message here is, even if a struggling company has reached a turning point, it’s still a good idea to approach with caution and not rush into every recovery story until we have an idea of what may be ahead.
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Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Intel, and Nvidia. The Motley Fool recommends the following options: short February 2025 $27 calls on Intel. The Motley Fool has a disclosure policy.
