The semiconductor industry is the beating heart of the AI revolution. It produces advanced chips for data centers where developers build, train and deploy their AI models. Nvidia's (Nasdaq: NVDA) Graphics processing units (GPUs) are best-in-class for these applications.
Nvidia shares have more than tripled over the past 12 months, pushing the company's value to $2.2 trillion. Just apple And Microsoft you deserve more.
Nvidia will likely continue to create value for investors, so I'm being sarcastic when I tell you to forget about the company. But the AI industry is evolving rapidly, and a number of other chip stocks are also surging. Micron technology (NASDAQ: MU) The stock just reached a record high of $113.50, surpassing its previous all-time best level two years ago. That's why it's not too late to buy.
The data center isn't the only game in town when it comes to AI
Micron is one of the world's leading producers of memory chips (DRAM) and storage chips (NAND), both of which are increasingly important for extracting maximum performance from an Nvidia data center. GPUs. In fact, Nvidia chose Micron's HBM3E memory solution to power its latest H200 chip, which is the successor to the industry-leading H100.
Micron HBM3E memory consumes approximately 30% less power than competing devices, and reducing electricity use is a growing focus for data center operators given the massive amount of computing power required by AI workloads. Therefore, it is not surprising that Micron's high-bandwidth memory (HBM) is completely sold out for calendar 2024, and most of its 2025 calendar supply has already been allocated.
But Micron's AI opportunity is now expanding beyond the data center. Every new computer and mobile device will soon be equipped with AI processors, which will speed up response times and improve user experience. The chips inside next-generation computers are called neural processing units (NPUs) and are specifically designed to handle AI workloads. They require up to 80% more DRAM content than today's average computer chips, and that translates into more revenue for Micron.
In the mobile space, Micron is expected Empowering artificial intelligence Smartphones are capable of holding up to twice the DRAM content compared to conventional models. Micron AI chips can be found in Samsung's new Galaxy S24, which comes with a host of AI features. One is Live Translate, which allows two people to talk on the phone in different languages, and the other is Circle to Search, which recognizes objects in photos and allows the user to perform an online search instantly.
On-device processing is the next frontier for the industry, as it will take AI out of the data center and integrate it into everyday life. Demand is already on the rise. Advanced micro devices It is a leader in AI CPU and NPU technologies, and has shipped millions of AI-enabled computers to date.
Micron has returned to profitability
Micron's revenues declined 50% during fiscal 2023 (ending August 31, 2023), resulting in a net loss for the company of $5.8 billion for the year. The pandemic-related supply shortage has caused the chip industry to overproduce, leading to abundant inventory and falling prices.
Micron has now emerged from that period. The company's revenue returned to growth in the first quarter of fiscal 2024 (ending November 30, 2023), although it still lost more than $1.2 billion on the bottom line. But the most recent fiscal 2024 second quarter (ending February 29, 2024) was a real breakout period for the company.
Micron generated revenue of $5.8 billion, which represented a massive 57% increase year over year and also smashed the company's expectations of $5.3 billion. In addition, it generated net income of $793 million, representing a welcome return to profitability.
CEO Sanjay Mehrotra attributed the strong quarter to a tightening supply and demand balance, which had a positive impact on prices across all end markets. However, he also noted the strength of demand for AI server (data center).
Micron expects revenue of $6.6 billion for the upcoming third quarter of fiscal 2024 (ending June 1), which represents a 76% increase compared to the same period last year. This would be a strong acceleration of growth from the second quarter.
Why Micron stock is a buy despite trading at all-time highs
Since Micron was losing money through the second quarter, investors cannot use its price-to-earnings (P/E) ratio to value its stock. However, based on the company's trailing 12-month revenue of $18.3 billion and its current market cap of $122 billion, Micron shares trade at a price-to-sales ratio of 6.7.
That's very cheap compared to Nvidia stock, which trades at a P/E of 37, and even Advanced Micro Devices stock, which trades at a P/E of 12.9. These names deserve a premium because their work in the GPU, CPU, and NPU spaces is unprecedented, and they effectively create demand for Micron's products.
However, AI is expected to add between $7 trillion and $200 trillion to the global economy over the next 10 years, and Micron devices are a key component to unlocking this value creation. The company is working to intensify the pace of innovation. It is now sampling its 12-height HBM3E data center product, which increases DRAM capacity by 50%. This means companies like Nvidia can pack more memory into each GPU, resulting in faster training and inference, paving the way for more advanced AI models.
With Micron's revenue growth clearly accelerating, the all-time high in its stock shouldn't stop investors from buying it – especially given its valuation and the big opportunity that lies ahead.
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Anthony Di Bizzio He has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Apple, Microsoft, and Nvidia. The Motley Fool recommends the following options: long $395 January 2026 calls on Microsoft and short $405 January 2026 calls on Microsoft. The Motley Fool has Disclosure policy.
Forget Nvidia: Another supersemiconductor stock just hit a new high, and it's not too late to buy Originally published by The Motley Fool
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