When it comes to artificial intelligence (AI) chips, Nvidia is rightly in the spotlight. The company’s data center graphics processing units (GPUs) are the best in the industry for developing AI models and have helped the company’s market capitalization increase by $2.6 trillion since the beginning of 2023.
But the field of AI is rapidly expanding, 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 essential not only for AI development in data centers, but also for processing AI workloads on computers and smartphones.
Micron just announced its latest financial results for the fourth quarter of fiscal 2024 (ended August 29), which showed tremendous growth across its business thanks to AI-driven demand. With the company’s stock currently down 21% from its all-time high (set earlier this year), here’s why now is a great time to buy.
Increasing memory capacity with AI
The memory chips complement the data center GPUs provided by Nvidia. Store information ready so you can recall it quickly. This is essential for data-intensive AI workloads. AI demands extremely high capacity from memory chips, and Micron’s HBM3E (High Bandwidth Memory) solution is one of the best in the industry.
In fact, Micron’s latest HBM3E 36 gigabyte (GB) unit provides up to 50% more capacity than any other product on the market, while consuming 20% less energy. The company’s data center memory solutions will be completely sold out by 2026. This is not surprising. That’s because Nvidia is using HBM3E in its new H200 GPU and may also use it in its upcoming Blackwell-based B200 GPU.
Micron believes it can maintain its technological lead in the HBM segment as it is already working on HBM4E. Although it is still several years away from official launch, it will provide a significant leap in capability to power the next stage of the AI revolution. The HBM market in data centers was worth just $4 billion in 2023, but Micron expects it to exceed $25 billion in 2025, so it’s important to stay ahead of the curve. That’s a staggering 525% increase in just two years.
But Micron’s AI opportunities extend beyond the data center. Companies are competing to launch AI personal computers for consumers and businesses, and Micron says most will have a minimum of 16 gigabytes of DRAM (memory), with premium models going up to 64 gigabytes. The PC industry’s average DRAM content was 12 GB last year, so capacity requirements are skyrocketing, which is a direct tailwind for Micron’s revenue.
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The smartphone industry is experiencing similar changes. Most manufacturers of Android-based devices have recently launched AI-enabled models, often with 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, making it the leader in this segment by a wide margin.
Micron’s profits are soaring
Micron had revenue of $7.75 billion in the fourth quarter, a 93% increase from the year-ago period. This is an acceleration from the company’s 81% revenue growth in the third quarter, highlighting how quickly demand is increasing.
The results were even stronger behind the scenes, as Computing and Networking (Data Center) revenue was $3 billion, a huge 152% increase year-over-year.
Tight supply of HBM chips for data centers also contributed to Micron’s gross margin increase significantly in the fourth quarter. The percentage was 35.3%, up significantly from 26.9% just three months ago and an even bigger jump from the 10.8% drop in the same period last year, when the company was suffering from oversupply.
As a result, Micron’s earnings per share (EPS) was $0.79, a significant improvement from the loss per share of $1.31 in the same period last year.
Micron expects further overall strength in the upcoming first quarter of fiscal 2025 (ending November 30). Revenue is expected to be $8.7 billion, representing 85% year-over-year growth and EPS of $1.54.
Micron stock looks like a good value right now.
Micron posted a loss in the first half, resulting in total EPS of just $0.70 in fiscal 2024. Therefore, it’s difficult to value a company based on its last 12 months of profits. However, Wall Street expects Micron’s EPS to jump to $8.79 during fiscal 2025.
Based on Micron’s stock price of $110.64 as of this writing, that means the company trades at a forward price-earnings ratio of just 12.6. For some perspective, that’s a 60% discount to Nvidia’s forward P/E of 31.3.
I’m not comparing Micron to one of the hottest semiconductor stocks in history, but if I believe NVIDIA will sell more data center GPUs, Micron should also grow in parallel with its HBM3E solution. is. Additionally, Micron has the added benefit of a potential AI-driven wave of demand in the personal computing and smartphone space.
For these reasons, we believe that the valuation difference between the two stocks is likely to narrow. After all, Micron stock would need to rise 28% from here just to regain its June all-time high of about $141. Additionally, the consensus price target for Micron’s stock is $157.71, according to the Wall Street Journal, which suggests the stock could rise further above its all-time high.
Given Micron’s recently announced strong financial results and outlook for the next quarter, now seems like a great time to buy the company’s stock.
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Anthony Di Pizio has no position in any stocks mentioned. The Motley Fool has a position in and recommends Nvidia. The Motley Fool has a disclosure policy.
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