Forget Nvidia: Here’s Another Great Semiconductor Stock You Can Buy Right Now, According to Wall Street

I’m being sarcastic when I tell you to forget. Nvidia (NVDA -0.36%). After all, how can you ignore a stock that has risen nearly tenfold in just 18 months, and now has a market cap of $3.1 trillion, representing 6.7% of all stocks? Standard & Poor’s 500 Not to mention, the company’s chips are the driving force behind artificial intelligence.

However, Nvidia’s astonishing rise in stock has made it expensive, even compared to its projected earnings two years from now. Nvidia isn’t the only chipmaker reaping the benefits of AI, so investors may find better value in other stocks in the space.

Micron Technology (M -0.53%) It is one to consider. The vast majority of analysts follow it The Wall Street Journal Giving it the highest possible Buy rating, while not recommending a Sell. this is the reason.

Image source: Getty Images.

Micron harnesses the wind of artificial intelligence

Nvidia’s graphics processing units (GPUs) are essential for AI development. However, memory chips are a key component in these GPUs. It essentially gives AI models short-term memory, storing data in a ready state where it can be immediately recalled either for training purposes or when a user queries the chatbot.

Micron manufactures the world’s leading HBM3E (HBM stands for high-bandwidth memory) for the data center. The HBM3E architecture delivers higher bandwidth than previous generations of memory (such as DDR), while taking up a smaller physical footprint that also consumes less power. This means mountains of data can be moved faster while reducing electricity costs. Both factors are top concerns for data center operators.

Micron’s HBM3E technology is so efficient that Nvidia uses it in its latest GPUs, including the new H200, which can infer AI models (live data ingestion and prediction) up to two times faster than the flagship H100.

During the third quarter of fiscal 2024 (ending May 30), Micron said its HBM data center solutions contributed $100 million in revenue. The company expects HBM’s total revenue to reach hundreds of millions of dollars at the end of fiscal 2024 (ending August 31), and several billion dollars in fiscal 2025. In fact, all of Micron’s supplies have been completely sold out next year. A year already.

But Micron’s AI opportunity doesn’t stop at the data center, because AI-enabled PCs require up to 80 percent more DRAM than traditional PCs, Micron says. MicrosoftThe new Copilot+ AI PC comes with a minimum DRAM content of 16GB, while the previous generation came with an 8GB option. Likewise, AI-enabled smartphones require up to twice the memory capacity of their predecessors.

These trends will bring more money to Micron.

Micron’s revenues are on the rise, thanks to artificial intelligence

Micron reported revenue of $6.8 billion in the third quarter, up 81% year-over-year. That was an acceleration from the previous quarter, when revenue grew 57%, and shows how quickly demand for AI is growing.

But beneath the surface of the headline number, the results were even more impressive. Revenues from Micron’s computing and networking (data center) business, the largest of its four segments, grew by 85% last year. The mobile sector expanded even faster, with revenues rising by 94% as the world’s leading smartphone manufacturers raced to integrate artificial intelligence into their flagship devices.

Micron also had a strong result in the final score. It generated earnings of $0.30 per share during the third quarter, which was a big swing from $1.73 Loss per share compared to the same period last year. It was also above management’s maximum forecast of $0.24.

As I touched on earlier, products like HBM3E are now sold out through the end of 2025, and these supply constraints give Micron the ability to charge higher prices. This translated into improved profitability in the third quarter, and these tailwinds should continue for at least next year.

Wall Street is very bullish on Micron stock

Micron stock is up 72% so far this year and is trading near all-time highs, but that hasn’t deterred Wall Street. Wall Street Journal There are 38 analysts covering the stock, with 27 of them giving it the highest possible buy rating. Another seven are in the overweight (bullish) camp, and two recommend a hold. Although two analysts have given Micron an underweight (bearish) rating, none of them recommend an outright sell.

Micron’s fiscal 2024 ends in August. Its bottom line will be jeopardized by weakness early in the year, caused by a glut of inventory in its consumer-oriented segments. But analysts have already turned their attention to fiscal 2025, when they expect Micron to earn $9.06 in earnings per share — based on its closing stock price of $142.36 on June 26, putting it at a forward price-to-earnings (P/E) ratio of just 15.7.

For perspective, iShares Semiconductor ETF Nvidia is trading today at a forward P/E ratio of 35.9, which means Micron’s stock would have to more than double its price over the next year just to trade in line with its chip industry peers (assuming Wall Street’s earnings forecasts are accurate). Additionally, Nvidia is trading at a forward P/E ratio of 46.6, which makes Micron’s stock look like a better value.

And since Micron’s HBM3E memory is a core component of many of Nvidia’s newer GPUs, any investor who believes Nvidia will succeed should also consider adding Micron to their portfolio, especially at the current price.