Finance
According to Wall Street, there’s another spectacular semiconductor stock to buy now
I’m being funny when I say you should forget about it Nvidia (NASDAQ: NVDA). After all, how can you ignore a stock that has grown almost tenfold in just 18 months and now has a market cap of $3.1 trillion, which accounts for 6.7% of the total market cap? S&P500 Table of contents? Not to mention that the company’s chips are the driving force behind artificial intelligence (AI).
However, the incredible run in Nvidia stock made it quite expensive, even in relation to expected profits in a few years. Nvidia isn’t the only chipmaker reaping the benefits of AI, so investors could find more value in other stocks in this space.
Micron technology (NASDAQ:MU) is one to consider. The vast majority of analysts followed suit The Wall Street Journal give it the highest possible buy rating, without anyone recommending a sell. This is why.
Micron gets the wind at its back from AI
Nvidia’s graphics processing units (GPUs) are critical to the development of AI. However, memory chips are an important part of those GPUs. They essentially give AI models short-term memory, storing data in a ready state where it can be immediately recalled for training purposes or when a user queries a chatbot.
Micron makes the world’s leading HBM3E (HBM stands for high-bandwidth memory) for the data center. HBM3E’s architecture provides higher bandwidth than previous generations of memory (such as DDR), while occupying a smaller physical footprint and also consuming less power. This means mountains of data can be transferred faster while reducing electricity costs. Both factors are top priorities 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 derive AI models (record live data and make predictions) twice as fast as its flagship H100.
During the recent third quarter of 2024 (ended May 30), Micron said its data center HBM solutions contributed $100 million in revenue. The company expects total HBM revenues to be in the hundreds of millions of dollars by the end of fiscal year 2024 (ending August 31) and several billion dollars by fiscal year 2025. In fact, Micron’s entire offering is completely sold out for the next period. years already.
But Micron’s AI capabilities don’t stop at the data center, as AI-enabled personal computers (PCs) require up to 80% more memory capacity (DRAM) than traditional PCs. says Micron MicrosoftThe new Copilot+ AI PC comes with a minimum DRAM content of 16 GB, while the previous generation had an 8 GB option. Likewise, AI-enabled smartphones require up to double the memory capacity of their predecessors.
These trends will lead to more money coming in the door for Micron.
Micron’s revenues are soaring thanks to AI
Micron generated revenue of $6.8 billion in the third quarter, representing year-over-year growth of 81%. That marked an acceleration from the previous quarter, when revenue grew 57%, indicating how quickly demand for AI is increasing.
Beneath the surface of the main song, the results were even more impressive. Micron’s computer and networking (data center) businesses, the largest of the four segments, grew 85% last year. The mobile segment expanded even faster, with revenue rising 94%, as the world’s leading smartphone manufacturers rushed to integrate AI into their flagship devices.
Micron also delivered a strong bottom line performance. It generated earnings per share of $0.30 in the third quarter, which was a big change from $1.73 loss per share from the previous year period. It was also above the high end of management expectations of $0.24.
As I mentioned earlier, the supply of products like HBM3E is now sold out until 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 those tailwinds should continue for at least the next year.
Wall Street is very bullish on Micron stock
Micron shares are up 72% so far this year and are trading near an all-time high, but that hasn’t deterred Wall Street. The Wall Street Journal follows 38 analysts covering the stock, and 27 give it the highest possible buy rating. Another seven are in the overweight (bullish camp) and two advise holding. Although two analysts have given Micron an underweight (bearish) rating, none recommend immediate selling.
Micron’s fiscal year 2024 ends in August. The bottom line will be affected by weakness at the start of the year due to inventory overload in consumer-facing segments. But analysts have already turned their attention to fiscal 2025, when they expect Micron to post earnings per share of $9.06 – based on the closing price of $142.36 on June 26, putting the company on a forward price-to-earnings ratio ( K/W). ) ratio of only 15.7.
For perspective, the iShares Semiconductor ETF is trading today at a price-to-earnings ratio of 35.9, implying that Micron shares will need to more than double over the next year to trade in line with their chip industry peers (assuming Wall Street’s earnings forecasts are accurate ). Furthermore, Nvidia is trading at a price-to-earnings ratio of 46.6, making Micron stock look like an even better value.
Since Micron’s HBM3E memory is a key component in many of Nvidia’s latest GPUs, any investor who thinks Nvidia will do well should also consider adding Micron to its portfolio, especially at its current price.
Should You Invest $1,000 in Micron Technology Now?
Consider the following before purchasing shares in Micron Technology:
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Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Microsoft, Nvidia, and iShares Trust-iShares Semiconductor ETF. The Motley Fool recommends the following options: long January 2026 $395 calls to Microsoft and short January 2026 $405 calls to Microsoft. The Motley Fool has one disclosure policy.
Forget Nvidia: There’s another spectacular semiconductor stock to buy now, according to Wall Street was originally published by The Motley Fool
