The chipmaker’s latest results suggest it’s getting a solid AI-powered boost.
Nvidia (NASDAQ: NVDA) has played a pioneering role in the proliferation of artificial intelligence (AI) technology with the help of its graphics processing units (GPUs), which are deployed in data centers to train large language models (LLMs) such as ChatGPT, leading to considerable growth in the company’s revenue and profits.
As a result, Nvidia’s stock has set the market on fire over the past year, nearly tripling in value. This explains why Nvidia stock is now trading at a lofty 72 times earnings. However, another company is experiencing a huge surge in revenue and earnings thanks to the growing adoption of AI, and it’s much cheaper than Nvidia.
Micron Technology (MU -3.81%) On June 26, Micron reported its third-quarter results for its fiscal 2024 fiscal year (for the three months ended May 30), and the company reported a strong increase in revenue and earnings. Let’s take a look at how AI is driving Micron’s growth and see if it’s a better AI stock to buy right now than Nvidia.
Micron Technology steps on the accelerator
In its fiscal third quarter, Micron’s revenue rose 81% from a year earlier to $6.8 billion. More importantly, its non-GAAP net income for the quarter was $0.62 per share, compared with a loss of $1.43 per share in the same quarter last year. The memory company’s forecast indicates that its growth is set to accelerate.
Specifically, Micron is forecasting revenue of $7.6 billion for the current quarter, which is the midpoint of its guidance range. That would represent a 90% increase over its revenue in the same period last year, meaning the company is expected to grow at a faster pace in the current quarter. The midpoint of the company’s earnings forecast of $1.08 also indicates a major turnaround from a loss of $1.07 per share in the same period last year.
Micron’s strong growth can be attributed to sustained demand for memory chips from many areas such as smartphones, personal computers (PCs), and data centers, all of which are getting an AI-powered boost.
For example, in the data center sector, Micron sold $100 million worth of high-bandwidth memory (HBM) chips in the last quarter. These HBM chips are used in AI graphics cards to deliver higher bandwidth and computing power. The good news is that Micron expects its HBM revenue to grow from “several hundred million dollars” in the current fiscal year to “several billion dollars in revenue” in fiscal 2025.
HBM will be a long-term growth driver for Micron, driven by strong demand for AI graphics cards. Additionally, Micron’s data center storage business is also getting a boost from growing demand for AI training and inference, which has driven an increase in demand for solid-state drives (SSDs). This, once again, represents a secular growth opportunity for Micron, as the global data center SSD market is expected to generate $133 billion in revenue in 2032, up from $37 billion last year.
Meanwhile, AI is also expected to drive demand for memory chips in the smartphone and PC markets. In its most recent earnings call, Micron management noted that AI-powered PCs are expected to “have 40 to 80 percent more DRAM content than the average PC today.” The company added that these PCs are also expected to come with larger storage capacities.
When it comes to smartphones, Micron says AI-powered smartphones are packing 50% to 100% more dynamic random access memory (DRAM) this year than last year’s flagship phones. With these catalysts, it won’t be surprising to see global memory market revenue grow to $321 billion by 2030, up from $193 billion last year, according to Fairfield Market Research.
All of this explains why analysts predict that Micron will experience meteoric growth in the coming years, even outpacing Nvidia’s estimated growth.
Buying this memory stock over Nvidia seems like a no-brainer
Micron ended its previous fiscal year with revenue of $15.5 billion. It is expected to end the current fiscal year with revenue of $25 billion, a 61% increase over the previous fiscal year. Nvidia’s revenue, on the other hand, is expected to grow from $60.9 billion in the previous fiscal year to $120 billion in the current fiscal year. Nvidia is therefore expected to grow faster than Micron this year.
However, as the chart indicates, Micron’s revenue could still grow by 50% next fiscal year, which would be well above Nvidia’s projected growth.
University of Montreal revenue estimates for the next fiscal year, data from YCharts
Additionally, Micron’s earnings are expected to grow at a much faster pace than Nvidia’s over the next two fiscal years.
EPS MU estimates for current fiscal year data by YCharts
Given that Micron Technology is trading at just 19 times forward earnings, which is a massive discount to Nvidia’s forward earnings multiple of 48, this seems like an obvious AI stock to buy right now, as it is not only significantly cheaper but also has the potential to outperform its illustrious peer.
