When it comes to artificial intelligence (AI) chips, Nvidia is rightly the center of attention. The data center graphics processing units (GPUs) are the best in the industry for developing AI models, and they helped the company add as much as $2.6 trillion to its market capitalization since the beginning of 2023.
But the AI landscape is expanding rapidly 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 crucial for the development of AI in the data center, as well as for processing AI workloads on computers and smartphones.
Micron just reported its latest financial results for the fourth quarter of fiscal 2024 (ending August 29), and it showed incredible growth across its business thanks to AI-powered demand. The share price is currently down 21% from its all-time high (set earlier this year), so here’s why now could be a good time to buy.
AI has a growing amount of memory capacity
Memory chips are complementary to the data center GPUs supplied by Nvidia. They store information ready so it can be accessed immediately, which is essential for data-intensive AI workloads. AI has extremely high capacity memory chips, and Micron’s HBM3E (high-bandwidth memory) solutions are among the best in the industry.
In fact, Micron’s latest 36 gigabyte (GB) HBM3E units deliver up to 50% more capacity than anything else on the market, while using 20% less energy. The company is completely sold out of its data center memory solutions until 2026, which isn’t surprising since Nvidia is using its HBM3E in the new H200 GPU, and possibly the upcoming Blackwell-based B200 GPU as well.
Micron believes it will maintain its technological supremacy in the HBM segment because it is already working on HBM4E. It’s still a few years away from its official launch, but it will provide a substantial leap in capability to power the next phase of the AI revolution. Staying ahead is critical as the data center HBM market was only worth $4 billion in 2023, but Micron expects it to exceed $25 billion by 2025 – an increase of as much as 525% in just two years!
But Micron’s AI capabilities extend beyond the data center. Companies are rushing to launch AI personal computers for consumers and enterprises, and Micron says most of these will have 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 skyrocketing, 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 released models with AI, and in many cases they are equipped with it 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 is the leader in this segment by a wide margin.
Micron’s turnover is soaring
Micron generated revenue of $7.75 billion in the fourth quarter, up 93% from the same period a year ago. It marked an acceleration from the company’s 81% revenue growth in the third quarter, highlighting how quickly demand is increasing.
The result was even stronger beneath the surface as it was marked by $3 billion in compute and networking (data center) revenues, 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 the fourth quarter. It stood at 35.3%, which was a big jump from 26.9% just three months earlier, and an even bigger jump from 10.8% decrease in the quarter of last year (when the company was experiencing a supply surplus).
As a result, Micron’s earnings per share (EPS) came in at $0.79, a big improvement from $1.31 loss per share from the previous year period.
Micron expects to deliver further strength across the board in the upcoming first quarter of 2025 (ending November 30). Revenue is expected to reach $8.7 billion, which would represent 85% year-over-year growth, with earnings per share of $1.54.
Micron stock seems to have great value right now
Micron generated just $0.70 in total earnings per share in fiscal 2024 as it lost money in the first half of the year. Therefore, it is difficult to value the company based on the last twelve months’ profits. But Wall Street expects Micron’s earnings per share to rise to $8.79 in fiscal 2025.
Based on Micron’s share price of $110.64 at the time of writing, this means the company is trading at a price-to-earnings (P/E) ratio of just 12.6. From some perspectives, that’s a 60% discount to Nvidia’s forward price-to-earnings 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 will sell more data center GPUs, then Micron should also experience parallel growth in its HBM3E solutions. Additionally, Micron has the added benefit of a potential AI-driven demand wave in the personal computing and smartphone segments.
For these reasons, I think the valuation gap between the two stocks is likely to narrow. After all, Micron shares would need to rise 28% from here to regain the all-time high of around $141 reached in June. Moreover, according to The Wall Street JournalThe consensus price target for Micron stock is $157.71, implying even further upside potential beyond the all-time high.
Given the strong results Micron just reported and its forecast for the coming quarter, now seems like a good time to buy shares.
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Anthony Di Pizio has no positions in the stocks mentioned. The Motley Fool holds positions in and recommends Nvidia. The Motley Fool has a disclosure policy.
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