I’m being funny when I say you should forget it Nvidia (NASDAQ: NVDA)After all, how can you ignore a stock that has grown nearly tenfold in just 18 months and now has a market cap of $3.1 trillion, representing 6.7% of the total S&P500 table of contents? Not to mention the fact that the company’s chips are the powerhouse behind artificial intelligence (AI).
However, the incredible run in Nvidia stock has made it quite expensive, even relative to its expected profits a few years from now. Nvidia isn’t the only chipmaker reaping the rewards of AI, so investors may find more value in other stocks in the sector.
Micron technology (NASDAQ:MU) is one to consider. The overwhelming majority of analysts who The Wall Street Journal give it the highest possible buy rating, with no one recommending to sell. Here’s 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-leading HBM3E (HBM stands for high-bandwidth memory) for the data center. The HBM3E architecture offers higher bandwidth than previous generations of memory (such as DDR), while taking up 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 train AI models (process live data and make predictions) twice as fast as its flagship H100.
During the recent fiscal third quarter 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 in the multi-billion dollars by fiscal year 2025. In fact, all of Micron’s inventory for next year is already completely sold out.
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 capacity of 16GB, while the previous generation had an 8GB option. Similarly, AI-capable 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 revenue increases thanks to AI
Micron generated $6.8 billion in revenue in Q3, representing year-over-year growth of 81%. That marked an acceleration from the previous quarter, when revenues 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 for the same period last year. It was also above the high end of management’s guidance of $0.24.
As I mentioned earlier, stock on products like HBM3E is now sold out until the end of 2025, and those supply constraints give Micron the opportunity to charge higher prices. It translated into improved profitability in Q3, 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 a record 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 2024 year ends in August, and its ultimate earnings result will be hurt by early-year weakness stemming from a glut of inventory in consumer-facing segments. But analysts have already turned their attention to fiscal 2025, when they expect Micron to post earnings of $9.06 per share — based on its June 26 closing price of $142.36, which gives it a forward price-to-earnings (P/E) ratio of just 15.7.
For perspective, the iShares Semiconductor ETF is trading at a forward price-to-earnings ratio of 35.9 today, meaning Micron stock would have to more than double within the next year to trade in line with its chip industry peers (assuming Wall Street’s earnings forecast holds true). Furthermore, Nvidia is trading at a forward 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 their portfolio, especially at its current price point.
Should You Invest $1,000 in Micron Technology Now?
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Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Microsoft, Nvidia, and the iShares Trust-iShares Semiconductor ETF. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
Forget Nvidia: This Is Another Spectacular Semiconductor Stock To Buy Now, According To Wall Street was originally published by The Motley Fool
