There is an overlooked AI stock on the market that may have more room to run in the near term
Wall Street analysts are currently bullish on Micron Technology (NASDAQ:MU), a semiconductor stock that, much like Nvidia, has reaped the benefits of the AI boom.
But unlike NVIDIA, Micron is trading at a relatively low valuation, which means this AI stock could surge in the second half of 2024 — and beyond.
Micron and its similarities to NVIDIA
Many of the leading semiconductor companies occupy a specific niche within the field. While NVIDIA produces graphics processing units (GPUs) for computers, video games, phones and other devices, Micron develops memory and storage semiconductor chips for computers, smartphones, and data centers, among other devices.
Similar to NVIDIA, Micron’s revenue has been fueled by data centers, which are facilities that companies and organizations use to store their applications and data. Micron’s data center revenue has been sparked by its high bandwidth memory (HBM) chips, which allow it to handle generative AI, or GenAI, data requirements.
The HBM3E chips are among the fastest in the industry with the highest storage capacity while consuming 30% less power than those from Micron’s competitors, reducing storage costs for clients.
Huge revenue growth
Revenue growth has been strong, as Micron detailed in its fiscal third-quarter earnings report on June 26. Revenue increased 82% year over year in the quarter to $6.8 billion, while net income jumped to $332 million, or 30 cents per share, from a $1.9 billion net loss in the same quarter a year ago.
In the quarter, Micron generated $100 million in revenue from its HBM3E chips for data centers. Micron President and CEO Sanjay Mehrotra sees more growth ahead.
“We expect to generate several hundred million dollars of revenue from HBM in fiscal 2024 and multiple billions of dollars in revenue from HBM in fiscal 2025,” Mehrotra said in the earnings statement. “We expect to achieve HBM market share commensurate with our overall DRAM market share sometime in calendar 2025.”
Micron has the third-largest market share in DRAM, or dynamic random access memory chips, at around 23%. With Samsung and SK Hynix, the three control more than 90% of the market.
In the HBM space, Mehrotra said the chips are already sold out for calendar 2024 and 2025, with pricing already contracted for the vast majority of its 2025 supply.
“We are making significant strides toward expanding our HBM customer base in calendar 2025, as we design our industry-leading HBM technology with major HBM customers,” the CEO said.
Why Micron has more upside right now
Micron stock plunged about 8% after the earnings release. While the company’s growth numbers were huge, they fell short of analysts’ estimates.
The market also saw its guidance for the fourth fiscal quarter as slightly disappointing, even though it was in line with estimates.
However, this kneejerk negative reaction immediately post-earnings is actually a good thing for investors because it is more based on too-high expectations. It also brings down the valuation.
This is why Micron now stands out as a better option than NVIDIA stock, at least in the short term. Micron has a trailing P/E ratio of 10 and a forward P/E of 15, which makes it downright cheap.
On the other hand, NVIDIA’s valuation has exploded to 75, with a forward P/E of 49.
This difference is likely why the consensus among Wall Street analysts calls for a Micron price target of $165, which would be a 25% increase over the current price.
NVIDIA’s price target is just $130, which would only be 3% higher than its current price.
Thus, this might be a good time to consider this AI stock other than NVIDIA.
