When it comes to artificial intelligence (AI) chips, Nvidia is rightly the center of attention. Its graphics processing units (GPUs) for the data center are the best in the industry for developing AI models, and they have helped the company add a whopping $2.6 trillion to its market capitalization since the start of 2023.
But the AI landscape is rapidly expanding, and other semiconductor companies are also experiencing significant demand for their hardware. Micron Technology (NASDAQ: MU) is a leading supplier of memory and storage chips that are critical for developing AI in the data center, but also for processing AI workloads in computers and smartphones.
Micron just reported its latest financial results for its fiscal 2024 fourth quarter (ended Aug. 29), and it showed incredible growth across its entire business thanks to AI-driven demand. Its stock currently trades down 21% from its all-time high (set earlier this year), so here’s why now might be a great time to buy.
AI commands a growing amount of memory capacity
Memory chips are complementary to the data center GPUs supplied by Nvidia. They store information in a ready state so it can be called upon instantly, which is essential in data-intensive AI workloads. AI commands an extremely high capacity from memory chips, and Micron’s HBM3E (high-bandwidth memory) solutions are among the best in the industry.
In fact, Micron’s latest HBM3E 36-gigabyte (GB) units deliver up to 50% more capacity than anything else on the market, while consuming 20% less energy. The company is completely sold out of its data center memory solutions until 2026, which isn’t surprising because Nvidia is using its HBM3E in the new H200 GPU, and potentially also its upcoming Blackwell-based B200 GPU.
Micron believes it will maintain its technological supremacy in the HBM segment because it’s already working on HBM4E. It’s still a couple of years away from officially launching, but it will offer a substantial leap in capacity to power the next stage of the AI revolution. Staying ahead is crucial because the market for HBM in the data center was worth just $4 billion in 2023, but Micron expects it to top $25 billion in 2025 — a whopping 525% increase in just two years!
But Micron’s AI opportunity extends beyond the data center. Companies are racing to launch AI personal computers for consumers and enterprises, and Micron says most of them come with a minimum DRAM (memory) capacity of 16 gigabytes, with up to 64 GB for the premium models. Last year, the average DRAM content in the PC industry was 12 GB, so capacity requirements are surging, which is a direct tailwind for Micron’s revenue.
The smartphone industry is experiencing a similar shift. Most manufacturers of Android-based devices have recently launched AI-enabled models, and in many cases, they are fitted with twice the DRAM capacity of last year’s models. Micron’s LP5X memory is used by every tier-1 Android smartphone manufacturer in the world, so it’s the leader in this segment by a big margin.
Micron’s revenue is soaring
Micron generated $7.75 billion in revenue during Q4, which was a 93% increase from the year-ago period. It marked an acceleration from the company’s 81% revenue growth in the third quarter, which highlights how quickly demand is ramping up.
The result was even stronger beneath the surface because it was headlined by $3 billion in compute and networking (data center) revenue, which was up a whopping 152% year over year.
Tight supply of HBM chips for the data center also contributed to a sharp increase in Micron’s gross profit margin in Q4. It came in at 35.3%, which was a big increase from 26.9% just three months earlier, and an even bigger jump from a 10.8% decrease in the year-ago quarter (when the company was struggling with a supply glut).
As a result, Micron’s earnings per share (EPS) came in at $0.79, a big improvement from the $1.31 loss per share from the year-ago period.
Micron expects to deliver further strength across the board in the upcoming fiscal 2025 first quarter (ending Nov. 30). Its revenue is forecast to come in at $8.7 billion, which would represent 85% year-over-year growth, with $1.54 in EPS.
Micron stock looks like a great value right now
Micron generated just $0.70 in total EPS in fiscal 2024 because it lost money during the first half of the year. Therefore, it’s hard to value the company based on its trailing-12-month profit. But Wall Street expects Micron’s EPS to surge to $8.79 during fiscal 2025.
Based on Micron’s stock price of $110.64 as of this writing, that means it’s trading at a forward price-to-earnings (P/E) ratio of just 12.6. For some perspective, that’s a 60% discount to Nvidia’s forward P/E ratio of 31.3.
I’m not trying to compare Micron to one of the hottest semiconductor stocks in history, but if you believe Nvidia is going to sell more data center GPUs, then Micron should also experience parallel growth in its HBM3E solutions. Plus, Micron has the added benefit of a potential AI-driven demand wave in the personal computing and smartphone segments.
For those reasons, I think the valuation gap between the two stocks is likely to narrow. After all, Micron stock would have to gain 28% from here just to reclaim its all-time high of around $141, which was set in June. Plus, according to The Wall Street Journal, the consensus price target for Micron stock is $157.71, which implies even further upside beyond its record high.
Considering the strong results Micron just reported and its forecast for the upcoming quarter, now looks like a great time to buy its stock.
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Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.
1 Spectacular Semiconductor Stock Down 21% You’ll Wish You’d Bought on the Dip was originally published by The Motley Fool
