I’m being facetious when I tell you to forget Nvidia (NASDAQ: NVDA). After all, how can you ignore a stock that has risen nearly tenfold in just 18 months and now has a market cap of $3.1 trillion, or 6.7% of the entire market. S&P500 Not to mention, the company’s chips are the driving force behind artificial intelligence (AI).
However, the incredible rise of Nvidia shares it has become quite expensive, even compared to its expected profits in a few years. Nvidia isn’t the only chipmaker reaping the rewards of AI, so investors could find better value in other stocks in this area.
Micron technology (NASDAQ: MU) is to be considered. The overwhelming majority of analysts followed by The Wall Street Journal give it the highest Buy rating possible, with none recommending Sell. Here’s why.
Micron benefits from AI tailwind
Nvidia’s graphics processing units (GPUs) are essential to the development of AI. However, memory chips are a key part of these GPUs. They essentially give AI models short-term memory, storing data in a ready state where it can be instantly called up either for training purposes or when a user queries a chatbot.
Micron makes the world’s highest-performance HBM3E memory (HBM stands for high-bandwidth memory) for data centers. HBM3E memory architecture delivers higher bandwidth than previous generations of memory (such as DDR), while occupying a smaller physical footprint that also consumes less power. This means mountains of data can be transferred faster while reducing electricity costs. Both factors are top of mind for data center operators.
Micron’s HBM3E is so efficient that Nvidia is using it in its latest GPUs, including the new H200, which can infer AI models (ingest live data and make predictions) twice as fast as its flagship H100.
In the third quarter of fiscal 2024 (ended May 30), Micron said its HBM data center solutions contributed $100 million to revenue. The company expects total HBM revenue to be in the hundreds of millions of dollars by the end of fiscal 2024 (ended Aug. 31) and several billion dollars in fiscal 2025. In fact, Micron is already sold out of all of its inventory for next year.
But Micron’s AI opportunities don’t stop at the data center, as AI-enabled personal computers (PCs) require up to 80 percent more memory (DRAM) capacity than traditional PCs. Micron says MicrosoftThe new Copilot+ AI PC comes with a minimum DRAM capacity of 16GB, while the previous generation came with an 8GB option. Similarly, AI-enabled smartphones require up to twice as much memory capacity as their predecessors.
These trends will bring more money to Micron.
Micron’s revenues explode thanks to AI
Micron generated $6.8 billion in revenue during the third quarter, representing 81% year-over-year growth. This marks an acceleration from the previous quarter, when revenue increased 57%, reflecting how quickly demand for AI is growing.
Behind the headline numbers lie even more impressive results. Micron’s computing and networking (data center) business, the largest of its four segments, saw revenue grow 85% last year. Its mobile segment grew even faster, with revenue up 94%, as the world’s leading smartphone makers race to integrate AI into their flagship devices.
Micron also posted a strong bottom-line result. It generated $0.30 in earnings per share in the third quarter, which is a strong move from its profit of $1.73. loss per share compared to the same period of the previous year. It is also above the upper bound of management’s forecast, set at $0.24.
As I discussed earlier, inventories of products like the HBM3E are now depleted through the end of 2025, and these supply constraints give Micron the ability to charge higher prices. This translated into improved profitability in the third quarter, and this tailwind should persist at least through the next year.
Wall Street is very optimistic about Micron shares
Micron stock is up 72% so far this year and trading near an all-time high, but that hasn’t deterred Wall Street. The Wall Street Journal Of the 38 analysts who follow the stock, 27 give it the highest possible Buy rating. Seven others are overweight (bullish camp) and two recommend holding the stock. Although two analysts have given Micron an underweight (bearish) rating, neither recommend selling outright.
Micron’s 2024 fiscal year ends in August. Its bottom line will be hurt by early-year weakness, driven by excess inventory in its consumer-facing segments. But analysts have already turned their attention to fiscal 2025, when they expect Micron to generate earnings of $9.06 per share, based on its June 26 closing price of $142.36, which puts it at a forward price-to-earnings (P/E) ratio of just 15.7.
For perspective, the iShares Semiconductor Exchange Traded Fund (ETF) Micron stock is trading at a forward price-to-earnings ratio of 35.9 today, which implies that Micron stock will need to more than double in the next year to trade on par with its chip industry peers (assuming Wall Street’s earnings forecasts are accurate). Additionally, Nvidia is trading at a forward price-to-earnings ratio of 46.6, making Micron stock look like an even better value.
Given that Micron’s HBM3E memory is a key component in many of Nvidia’s latest GPUs, any investor who believes Nvidia will succeed should also consider adding Micron to their portfolio, especially at the current price.
Should you invest $1,000 in Micron Technology right now?
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Anthony DiPizio has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Microsoft, Nvidia, and iShares Trust-iShares Semiconductor ETFs. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Mad Motley has a disclosure policy.
Forget Nvidia: Here’s Another Spectacular Semiconductor Stock to Buy Right Now, According to Wall Street was originally published by The Motley Fool
