The proliferation of artificial intelligence (AI) has proven to be a major catalyst for the semiconductor industry. This is not surprising since AI models can only be trained and put into production through chips that are being deployed in large numbers in data centers.
This is why NVIDIA (NASDAQ:NVDA) has seen a surge in demand for graphics processing units (GPUs). GPUs can process large amounts of data simultaneously, making them the default choice for cloud service providers to train large-scale language models (LLMs). This explains why Nvidia’s data center business has been growing at an incredible pace over the past few quarters and is expected to expand further in the future.
However, GPUs aren’t the only chips that are in high demand due to the surge in AI adoption. micron technology (NASDAQ:MU)The memory chip maker has also benefited greatly from the increased adoption of AI. In this article, we take a closer look at how AI has driven Micron’s business and why the memory specialist is a better AI stock to buy now compared to Nvidia.
Micron Technology benefits from AI adoption in multiple areas
Micron Technology announced its fourth quarter financial results for fiscal year 2024 (three months ending August 29) on September 25. The company’s revenue rose 93% year over year to $7.75 billion, beating consensus estimates of $7.65 billion. Additionally, Micron earned $1.18 per share in the last quarter, compared to a loss of $1.07 per share in the year-ago period. Analysts had expected the company to report earnings per share of $1.11.
With memory market dynamics improving thanks to AI, it was no surprise that Micron beat Wall Street expectations. For example, demand for Micron’s data center memory chips exceeds supply, which is not surprising since these chips are used by Nvidia and others while manufacturing GPUs. More specifically, AI-focused GPUs are equipped with high-bandwidth memory (HBM) chips, thanks to their ability to quickly process large amounts of data.
That’s why Micron expects the HBM market to reach $25 billion in annual revenue in 2025, compared to just $4 billion in annual revenue last year. The company also added that it sold “hundreds of millions of dollars” worth of HBM last year and has already sold out of next year’s HBM production capacity.
Meanwhile, the introduction of AI is also leading to improved demand for solid-state drives (SSDs) used in data centers. Micron’s data center SSD revenue tripled in FY2024. With the introduction of AI servers, the average annual growth rate for data center SSDs is expected to be 60%, so it’s no surprise that Micron will maintain impressive growth in this segment in the future, according to market research firm TrendForce. According to the company, demand will increase in the coming years.
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However, Micron’s AI-related catalysts don’t end there. The introduction of AI-enabled PCs will be another solid growth driver for the company, driving impressive growth in the volume of both computing chips and storage memory chips. Micron CEO Sanjay Mehrotra said in the latest earnings call:
AI PCs require more memory and storage. As an example, a major PC OEM recently announced AI-enabled PCs with a minimum of 16 GB of DRAM for the value segment and 32 GB to 64 GB of DRAM for the mid and premium segments. By comparison, the average content across all PCs last year was about 12 GB.
A similar scenario is playing out in the smartphone market, with Android original equipment manufacturers (OEMs) launching AI smartphones with average capacities of 8GB to 12 gigabytes (GB) to 16GB of dynamic random access memory (DRAM). Micron points out that It will be installed in major smartphones in 2023.
IDC estimates that the generative AI smartphone market could grow at 78% annually through 2028. Meanwhile, Gartner estimates that AI PC shipments could increase by a whopping 165% next year. The tremendous growth in these end markets presents a bright multi-year opportunity for Micron to grow sales and profits, thanks to increased memory consumption by AI-enabled edge devices such as smartphones and PCs.
All of this points to Micron being a more diversified AI stock than Nvidia, as it stands to benefit from the adoption of this technology in more ways than just data centers. Even better, Micron’s forecasts suggest that the company is on track to record faster growth than its prominent peers.
Micron’s guidance and valuation make Micron a top AI stock to buy now
Micron is coming off a strong fiscal fourth quarter with impressive sales and bottom line growth. The company expects this momentum to continue in the first quarter of 2025. The company expects revenue for the quarter to be $8.7 billion and adjusted earnings to be $1.74 per share at the midpoint.
Top-line guidance indicates an 85% year-over-year increase, and the bottom line represents a significant improvement from the non-GAAP loss of $0.95 per share in the prior-year period. For comparison, Nvidia expects revenue to increase 80% year-over-year this quarter. That was one reason investors hit the panic button after the latest results, as the company has consistently delivered triple-digit growth over the past few quarters.
What’s more, Micron’s valuation means investors looking to add AI stocks to their portfolios right now would be better off buying the stock now rather than Nvidia. Micron’s 11x forward price/earnings ratio is significantly lower than Nvidia’s 44x forward earnings, and given its impressive growth, investing in the former makes sense at this point.
Should you invest $1,000 in Micron Technology right now?
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Harsh Chauhan has no position in any stocks mentioned. The Motley Fool has a position in and recommends Nvidia. The Motley Fool recommends Gartner. The Motley Fool has a disclosure policy.
The Ultimate Artificial Intelligence (AI) Stocks to Buy Now (Hint: It’s Not Nvidia) was originally published by The Motley Fool.
