1 Spectacular 21% Down Semiconductor Stock You Wish You’d Bought on the Dip

When it comes to artificial intelligence (AI) chips, Nvidia is rightly in the spotlight. Its data center graphics processing units (GPUs) are the best in the industry for developing AI models and helped the company add $2.6. trillion to its market capitalization as of early 2023.

But the AI ​​landscape is expanding rapidly, and other semiconductor companies are also experiencing significant demand for their hardware. Micron technology (NASDAQ: MU) is a leading supplier of memory and storage chips that are essential for AI development in the data center, but also for processing AI workloads in computers and smartphones.

Micron just reported its latest financial results for the fourth fiscal quarter 2024 (ended August 29) and has seen incredible growth across its business thanks to AI-driven demand. Its stock is currently trading down 21% from its all-time high (set earlier this year), so here’s why now could be a great time to buy.

AI commands an ever-increasing amount of memory capacity

The memory chips are complementary to Nvidia’s data center GPUs. They store information in a ready state so it can be called up instantly, which is essential in data-intensive AI workloads. AI commands extremely high capacity from memory chips, and Micron’s HBM3E (High Bandwidth Memory) solutions are among the best in the industry.

In fact, Micron’s latest 36 gigabyte (GB) HBM3E drives offer up to 50% more capacity than anything else on the market, while consuming 20% ​​less power. The company is completely sold out of its data center memory solutions by 2026, which is not surprising since Nvidia is using its HBM3E in its new H200 GPU and potentially the upcoming Blackwell-based B200 GPU as well.

Micron believes it will maintain its technological supremacy in the HBM segment as it is already working on HBM4E. Official launch is still a few years away, but it will provide a substantial leap in ability to power the next stage of the AI ​​revolution. Staying ahead is critical, as the market for HBM in the data center was worth just $4 billion in 2023, but Micron expects it to surpass $25 billion in 2025 — a staggering 525% growth in just two years!

But Micron’s AI opportunity extends beyond the data center. Companies are racing to release AI personal computers for consumers and businesses, and Micron says most of them come with a minimum DRAM (memory) capacity of 16 gigabytes, with up to 64GB for premium models. Last year, the average DRAM content in the PC industry was 12 GB, so capacity requirements are increasing, which is a direct tailwind for Micron’s revenue.

The story continues

The smartphone industry is experiencing a similar shift. Most manufacturers of Android-based devices have recently launched models with AI and in many cases are equipped with twice the DRAM capacity of last year’s models. Micron’s LP5X memory is used by every Tier 1 Android smartphone manufacturer in the world, so it leads the segment by a wide margin.

Micron’s revenue is growing

Micron generated revenue of $7.75 billion in Q4, which was a 93% increase from the year-ago period. It marked an 81% acceleration in the company’s revenue growth in the third quarter, highlighting how quickly demand is growing.

The result was even stronger under the surface, as it was marked by $3 billion in computing and networking (data center) revenue, which grew 152% year-over-year.

HBM’s tight supply of data center chips also contributed to a sharp increase in Micron’s gross profit margin in Q4. It reached 35.3%, which was a big increase from 26.9% just three months earlier and an even bigger increase from 10.8% DOWN in the year-ago quarter (when the company was struggling with a supply glut).

As a result, Micron’s earnings per share (EPS) came in at $0.79, a significant improvement from $1.31. loss per share from the year-ago period.

Micron expects to deliver additional power overall in the next fiscal 2025 first quarter (ended Nov. 30). Its revenue is expected to reach $8.7 billion, which would represent 85% year-over-year growth, with $1.54 in EPS.

Micron stock looks like an excellent value right now

Micron generated just $0.70 in total EPS in fiscal 2024 because it lost money in the first half of the year. Therefore, it is difficult to evaluate the company based on its 12-month profit. But Wall Street expects Micron’s EPS to rise to $8.79 in fiscal 2025.

Based on Micron’s share price of $110.64 at the time of writing, that means it’s trading at a forward price-to-earnings (P/E) ratio of just 12.6. For some perspective, that’s a 60% discount to Nvidia’s P/E ratio of 31.3.

I’m not trying to compare Micron to one of the best semiconductor stocks in history, but if you think Nvidia will sell more data center GPUs, then Micron should also experience parallel growth in its HBM3E solutions. In addition, Micron has the added benefit of a potential surge in AI-driven demand in the personal computer and smartphone segments.

For these reasons, I think the valuation gap between the two stocks is likely to narrow. After all, Micron stock would need to gain 28% from here just to recapture its all-time high of around $141 that was set in June. Plus, according The Wall Street Journalthe consensus price target for Micron stock is $157.71, implying further upside beyond the record high.

Given the strong results reported by Micron and its outlook for the coming quarter, now seems like a great time to buy its stock.

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Anthony Di Pizio has no position in any of the shares mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.

1 Spectacular Semiconductor Stock Down 21% You’ll Wish You’d Bought on Your Foot was originally published by The Motley Fool