Bull markets are often built around themes, and it’s clear which ones are driving current gains. Of course, it’s all about AI, and the bull market begins towards the end of 2022, fueled by the launch of OpenAI’s ChatGPT and the development of the GenAI model.
Stay ahead of the market:
AI has captured the imagination of investors, and for good reason. This technology is transforming our lives in many ways, shaping not only our digital habits but also our healthcare, workplace, entertainment, education, finance, and more.
Enthusiasm for AI in general has also greatly benefited companies operating in this space. However, some companies are in a better position to benefit than others. With this in mind, Morgan Stanley analyst Joseph Moore assesses the prospects of two major AI companies, semiconductor companies Nvidia (NASDAQ: NVDA) and Micron (NASDAQ: MU). We believe that the company is currently leaning towards being the better company. Let’s dive in.
Nvidia
A discussion about AI and the Nvidia name naturally arises. Jensen Huang’s semiconductor company has seized on the AI opportunity and has become synonymous with the technology. At one point last year, the company was the world’s most valuable company, a title shared only by tech giants Apple and Microsoft in recent years.
Nvidia started out as a manufacturer of GPUs focused on the gaming industry. This was the company’s main breadwinner for many years until it began expanding in other directions, making a major pivot to the data center sector in the process. It now accounts for the majority of its revenue, and its success is based on the simple fact that Nvidia makes the best AI chips on the market. In fact, it dominates the AI chip industry with over 80% share.
This growth is evidenced by a series of weaker-than-expected quarterly results that initially shocked Wall Street, but are now near normal. In its latest October quarter (Q3) announcement, the quasi-giant posted an impressive 93.6% year-on-year sales growth, setting a new record of $35.08 billion, beating analysts’ expectations by $1.95 billion. It was over a million dollars. As is tradition, the company’s data center division led the way with $30.8 billion in revenue, an increase of 112% year-over-year. On the other hand, adverbs. EPS was $0.81, beating consensus estimates by $0.06. For the January quarter, the company forecast sales of $37.5 billion (with a margin of error of 2%), beating Wall Street’s forecast of $37.1 billion.
Most recently, this week Nvidia announced its latest developments at the CES Technology Show, providing updates on its GPU lineup and other product introductions.
Morgan Stanley analyst Moore, who was there to find out, thinks patience on the part of investors will pay off later this year.
“What ultimately makes or breaks the investment thesis at this stage is the trajectory of the data center business. It’s clear that management remains excited about Blackwell’s plans, but we haven’t heard anything about this event. Nothing,” said the five-star analyst. “Our sense is that Hopper is a little behind, but Blackwell supply is generally better than expected, so there will be a few transitional quarters (like the last two quarters, strong but subdued). But we’re going to stay on track. We’re looking at a very positive situation.” 2H25 will be strong as Blackwell drives revenue growth and NVDA takes market share from ASICS in CY25. It has changed. ”
These comments support Moore’s Overweight (i.e. Buy) rating on NVDA, and his $166 price target projects an 18.5% upside in 12 months. (Click here to see Moore’s track record)
There is broad consensus on Wall Street about NVDA. The stock claims a “Strong Buy” consensus rating, based on a combination of 37 Buy recommendations and just 3 Holds. The average target is more bullish than Moore admits. At $178.16, this number has room for a 27% one-year return. (See NVIDIA stock price forecast)
micron
The next AI stock to look at may not have the star power of Nvidia, but it’s no small fry either. Micron, with a market capitalization of $110.7 billion, is one of the world’s leading manufacturers of memory and storage solutions, with products ranging from DRAM and NAND flash to SSDs and other cutting-edge technologies. Micron plays a critical role in powering the devices and applications we use every day, from smartphones and laptops to data centers and cloud computing platforms.
Micron also stands to benefit greatly from the adoption of AI. AI-driven applications such as large-scale language models, autonomous systems, and advanced analytics require enormous computational power and memory bandwidth. Micron’s high-performance memory solutions are ideally suited to meet these demanding requirements, and the company is poised to take full advantage of the AI opportunity.
That said, while Micron’s latest quarterly report showed a lot of growth, there’s a spanner in the works that will send the stock plummeting in its aftermath.
For the November quarter (F1Q), Micron reported revenue of a record $8.71 billion, up 84% year over year, in line with market expectations. Data center revenue stood out, increasing 400% year-over-year to a record high and accounting for more than half of total revenue for the first time. On the revenue side, adjusted EPS of $1.79 slightly beat analysts’ expectations of $1.77.
Despite these strong numbers, investors were concerned about the outlook for the February quarter, which turned out to be a major disappointment. Micron expected revenue of $7.7 billion to $8.1 billion and adjusted EPS of $1.33 to $1.53. At the midpoint, both estimates are well below Wall Street’s expectations for revenue of $8.99 billion and EPS of $1.92, raising concerns among analysts and investors about short-term challenges.
Morgan Stanley’s Joseph Moore thinks Micron has tailwinds moving forward, but he’s refraining from getting into it for now. Explaining his stance, the analyst wrote: “While we are a little torn because our traditional view of DRAM is that valuations are too high for the long-term cash generation potential, the stock price is clearly tied to AI enthusiasm. HBM3e growth from low levels, low-power DRAM for AI racks, and high-capacity DRAM for servers have all contributed to billions of dollars in revenue for AI. Our Equal Weight (i.e. Neutral) view reflects that ambiguity, but we believe the stock can continue to recover lost ground in the near term.”
Perhaps so, but its Equal Weight rating comes with a $98 price target, suggesting the stock will remain range-bound for now.
But Mr. Moore is in the minority on Wall Street. Analyst consensus considers Micron stock a Strong Buy. This is a rating based on 20 buy recommendations and just 2 holds. If we go with the average target of $136.43, the stock price will change at a premium of 37% in one year. (See Micron stock price forecast)
Given the facts, Morgan Stanley analyst Joseph Moore currently calls Nvidia a better AI stock, a better buy than Micron, and a solid choice for investors despite its impressive rally. It’s clear that you appreciate it.
To find good ideas for trading stocks at attractive valuations, visit TipRanks’ Best Stocks to Buy, the tool that unites all of TipRanks’ equity insights.
Disclaimer: The opinions expressed in this article are solely those of the featured analysts. Content is for informational purposes only. It is very important to perform your own analysis before making any investment.
