Nvidia (NASDAQ: NVDA) The stock price has risen 223% in the past year, catapulting the company to a valuation of $2.1 trillion (just Apple And Microsoft are worth more). Nvidia makes powerful data center graphics processing chips (GPUs) designed to handle artificial intelligence (AI) workloads, and the company is overwhelmed by demand.
But while investors are (understandably) very focused on Nvidia, they may be overlooking other opportunities in the chip sector. According to The Wall Street JournalAnalysts have a consensus overweight (bullish) rating on two other names: Micron technology (NASDAQ:MU) And Axcelis Technologies (NASDAQ:ACLS).
This is why following Wall Street and buying shares of Micron and Axcelis could be an excellent idea.
1. Micron Technology is a crucial partner for Nvidia
Micron is one of the world’s largest makers of memory (DRAM) and storage (NAND) chips, which are critical to everything from smartphones to data centers. As a result, the company’s opportunities in the growing AI space are already proving to be multifaceted.
First, Nvidia chose Micron’s latest HBM3E (high-bandwidth memory) solution to power its new H200 data center GPU, which is the successor to its industry-leading H100. Micron’s HBM3E memory consumes 30% less power than competing hardware, making it an obvious choice if data center administrators want to keep costs down. Unsurprisingly, Micron’s high-bandwidth memory for 2024 is completely sold out, with most of the 2025 supply already allocated.
Second, AI workloads are quickly migrating from the data center to computers and devices, creating a faster and more intuitive user experience. The chipsets in AI-enabled computers are called neural processing units (NPUs) and require 80% more DRAM capacity than traditional chips. Likewise, Micron expects DRAM content on mobile devices to double. That translates into more demand and more revenue for the company.
Micron’s chips can already be found in Samsung’s latest Galaxy S24 smartphone, which it also advertises as ‘Galaxy AI’. It features a chat assistant, translation assistant and new camera technologies, all powered by AI.
Micron shares are already up 47% in 2024 and trading near an all-time high. Investors were very satisfied with the second quarter of 2024 (ending February 29). For the second quarter, it delivered $5.8 billion in revenue, up 57% year over year. The company appears to have fully recovered from a challenging landscape last year, when it faced an oversupply of chips.
The Wall Street Journal follows 38 analysts who cover Micron stock, and 27 have given it the highest possible Buy rating. The company forecasts accelerated revenue growth of 76% in the upcoming third quarter of 2024 (ending June 1), so more upside potential could be in store for the stock.
2. Axcelis is one of the cheapest chip stocks
Axcelis Technologies is often overlooked by investors because it doesn’t actually produce chips. Instead, it makes ion implantation equipment that is crucial to the manufacturing process. The Wall Street Journal follows only eight analysts covering Axcelis stock, but the majority of them have given it the highest possible Buy rating. It’s currently trading at a very attractive valuation, so investors may want to follow The Street’s lead.
The electric vehicle (EV) industry is a key source of demand for Axcelis, as it is the only ion implant company with full coverage of electrical device applications. Power devices regulate electrical current under high-current workloads, and chemicals such as silicon carbide can help manufacturers deliver hardware that is much more efficient. In EV applications, this leads to shorter charging times and a much greater range of the battery.
Axcelis expects that AI will also become an increasingly important source of demand. As I touched on in the Micron section, AI requires significantly more memory and storage capacity than traditional computing workloads, and that means more complex manufacturing processes and more expensive chips.
Axcelis generated revenues of $1.13 billion in 2023, up 22.9% from 2022. Earnings per share (earnings) rose an even more impressive 36.1% to $7.43. But it gets even better, because the company currently has an order book worth a whopping $1.2 billion, so 2024 could be another strong year.
Axcelis stock is up 390% over the past five years, even after taking into account the recent 46% decline from its all-time high. Based on the company’s 2023 earnings and its current share price of $104.32, it trades at a price-to-earnings (P/E) ratio of just 14. That’s a 56% discount to its iShares Semiconductor ETFwith a price-to-earnings ratio of 32.3, implying that Axcelis is much cheaper than its peers in the chip industry as a whole.
Based on Wall Street’s consensus price target of $156, Axcelis stock could rise 50% from its current price. Just to trade in line with the iShares Semiconductor ETF, it would have to more than double. However investors look at it, there are very clear arguments for potential upside.
Should You Invest $1,000 in Micron Technology Now?
Consider the following before purchasing shares in Micron Technology:
The Motley Fool stock advisor The analyst team has just identified what they think is the 10 best stocks for investors to buy now… and Micron Technology wasn’t one of them. The ten stocks that survived the cut could deliver monster returns in the coming years.
Think about when Nvidia created this list on April 15, 2005… if you had $1,000 invested at the time of our recommendation, you would have $514,887!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including portfolio building guidance, regular analyst updates, and two new stock picks per month. The Stock Advisor is on duty more than quadrupled the return of the S&P 500 since 2002*.
View the 10 stocks »
*Stock Advisor returns April 15, 2024
Anthony Di Pizio has no positions in the stocks mentioned. The Motley Fool holds positions in and recommends Apple, 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 a disclosure policy.
Forget Nvidia: 2 Super Semiconductor Stocks to Buy on Hand, According to Wall Street Originally published by The Motley Fool
