Nvidia has dominated the AI story in the stock market, captivating investors and the media after soaring 2,190% over the past five years and briefly becoming the world’s most valuable company (currently No. 2). ).
But Nvidia isn’t the only company with opportunities in AI and semiconductors. In fact, one chipmaker reported in its latest earnings report (quarter ending Nov. 28) that data center revenue increased more than 400% year-over-year, with overall revenue up 84% to $8.7 billion. That’s all.
I’m talking about Micron Technology (MU 3.48%)the memory chip specialist is down an astonishing 44% from its recent peak, despite explosive growth. This discount and its potential in AI make this stock an attractive buy at the moment. Let’s first take a look at the company’s recent performance, then make a case for buying.
Image source: Getty Images.
What is Micron?
Micron is a leader in memory chips, including DRAM, NAND, and high-bandwidth memory (HBM). The company is also an integrated device manufacturer, both designing and manufacturing its own chips, similar to Intel and Samsung.
Memory chips are a highly cyclical business, prone to price fluctuations and industry oversupply, and Micron’s ownership of its foundry exposes it to semiconductor boom-and-bust cycles. Foundries require a lot of capital to operate, but their integrated business model allows them to earn more profits when business is strong.
The chart below shows Micron’s price compared to previous highs, showing how volatile the stock is. As you can see, over the past 10 years, the stock has fallen more than 40% four times before hitting new all-time highs.
Data by YCharts.
Cyclicality and volatility are some of the risks of investing in Micron, but the semiconductor sector is currently booming due to explosive growth in AI, even as some sub-sectors such as PCs and smartphones are underperforming. There is no doubt. In addition to Nvidia’s explosive growth, industry leader Taiwan Semiconductor Manufacturing also recently reported strong growth in the sector, reporting a 36% increase in third-quarter revenue to $23.5 billion. is shown.
Management noted strong AI demand and said data center revenue exceeded 50% of total revenue for the first time in the quarter, following the path first blazed by Nvidia in the chip space. Currently, the bulk of Micron’s revenue comes from its data centers, where AI computing takes place.
Why Micron stock plummeted following this report
After reporting first-quarter results on Wednesday, Micron shares fell as much as 19% on Thursday after the company gave a weak outlook for the second quarter. However, the company has a history of being conservative with its guidance, and while the weakness has been due to consumer markets such as smartphones, its AI business remains strong.
As part of a business closely related to AI, HBM is experiencing impressive growth. The company said it met its HBM targets for the fiscal year and is on track to achieve a “significant record” in HBM earnings, including “significant improvements in profitability and free cash flow” for the fiscal year. .
Micron expects second-quarter sales and adjusted earnings per share (EPS) to continue to decline, falling from $8.7 billion to $7.9 billion, and adjusted EPS to decline from $1.79 to $1.43. There is.
However, management’s explanation for the weak outlook should reassure investors. CEO Sanjay Mehrotra said the company had previously warned that seasonality and lower customer inventory in consumer segments such as smartphones would impact second-quarter results. “The impact of customer inventory reductions is becoming more pronounced,” he added, adding: “We expect this adjustment period to be relatively short, with customer inventories reaching healthy levels by the spring. We expect that we will be able to strengthen bit shipments in the second half of the year.” 2025 Year and Calendar. ”
In other words, the issues driving the weak second-quarter outlook appear to be just a speedbump rather than an ongoing headwind for the company, with management still expecting a return to growth in the second half of the year. A 17% drop in the stock price due to a one-time guidance cut feels like a misread on the market and a buying opportunity for investors.
Why you can buy Micron without hesitation
Selling on short-term news is often a good buying opportunity, but that’s not the only reason to buy Micron. Micron is clearly capitalizing on the AI boom with soaring data center revenues, with its largest customer believed to be Nvidia, which currently accounts for 13% of its revenue. A close relationship with Nvidia is clearly a tailwind at this stage of the AI boom, as Nvidia just reported 94% year-over-year revenue growth in its Q3 report.
Micron’s performance is notoriously volatile and cyclical, but under the right circumstances it has the ability to generate huge profits, and those profits appear to be forming as the AI boom continues. For example, Micron expects HBM’s addressable market to jump from $16 billion in 2024 to $64 billion in 2028 and $100 billion in 2030. Even if it just maintains market share in that segment, HBM’s revenue will quadruple in four years. year and 6x and 6 years.
Finally, Micron’s stock is also much cheaper than its AI and chip peers, with a forward P/E of just 10x based on this year’s estimates. Those estimates are likely to fall after the guidance, but at prices close to them Micron still looks like a bargain.
Micron investors will need to closely monitor the chip and AI cycle, but the stock has plenty of upside potential. A return to all-time highs this summer would mean a 75% rise in the stock price, and the stock could continue to rise even further over the next year or two, especially if strong growth in the data center sector continues. .
Micron is a rare AI stock with fast growth and great value right now.
