Is Micron Stock Like Nvidia?

With all the hype surrounding artificial intelligence applications, some investors are wondering is Micron stock like NVIDIA? The short answer is no, it’s not like NVIDIA but it does supply chips to the AI chip manufacturer and so benefits from demand spikes.

Micron (NASDAQ:MU) is a longtime manufacturer of memory chips and other semiconductors. Like many other companies in its industry, Micron has seen an increase in demand for its chips due to the boom of generative AI over the last year and a half.

In Micron’s case, the surging demand has been for its high-bandwidth memory (HBM) chips, a type of chip that provides the memory capacity for AI processors.

MU shares have been on something of a rollercoaster, a fact that could make the stock slightly more appealing than other heavily bought AI shares.

Though it has risen by more than 108% over the last 12 months and recently closed at an all-time high, Micron has leveled off and indeed fallen slightly in recent weeks. This may create an opportunity for investors to buy in before for the stock eventually resumes its upward trajectory.

Micron’s Fortunes Are Turning More Positive

Perhaps the biggest thing to like about Micron right now is the fact that it has recently managed to turn around negative trends in both its revenue and net income growth.

Through late 2022 and much of 2023, the company’s revenues were contracting at fairly high double-digit rates, including two quarters where revenues fell by more than 50% year-over-year.

At the same time, Micron’s net income reporting turned sharply negative. In 2023, the company lost nearly $7 billion.

Thanks to massive AI-driven demand for its memory chips, though, Micron has started growing again and is reporting positive net incomes.

In the quarter ending on May 30th, Micron reported $6.81 billion in revenues, an increase of over 80% compared to the year-ago quarter. Revenues even grew 17% compared to the previous quarter, showing just how strong Micron’s sales growth trend is at the moment.

Likewise, net income has recovered as sales moved higher. Micron reported a GAAP net income of $332 million last, a massive improvement from the loss of $1.90 billion it posted in the year-ago period. It should be noted, though, that this was significantly lower than the $793 million it had earned the quarter before.

Looking forward to the next quarterly report, management expects to post revenues of $7.60 billion. Earnings per share, meanwhile, are expected to essentially double from $0.30 to $0.61. Though lofty, these growth targets suggest that management sees an excellent period ahead for the company.

What About Valuation?

Like many AI stocks, Micron has been assigned a premium pricing by an extremely enthusiastic market.

MU shares trade at over 115x expected forward earnings and 60x cash flow. The price-to-sales and price-to-book ratios are somewhat more reasonable at 6.9x and 3.4x, respectively, but these are still fairly high multiples for a company as large as Micron.

Nevertheless, analysts’ sentiment on MU shares is quite bullish at the moment. The median target price for the stock over the next 12 months is $167.50. If achieved, this would be a gain of over 25% from the most recent closing price.

Additionally, an overwhelming 93% of the analysts covering the stock rate it as a Buy, and institutional ownership of Micron exceeds 80%.

Cumulatively, these facts point to great confidence in the company on Wall Street in spite of what would seem to be a very high price for the stock.

Will Demand for Micron’s Chips Remain Strong?

One of the key questions surrounding Micron at the moment is how resilient its moat is in the fast-paced world of AI chips.

The effects of AI demand were already visible in Micron’s most recent quarterly report. Data center revenue rose 50% year-over-year, and management expects it to continue at an accelerated rate for some time.

To make sense of Micron’s valuation, though, the company will likely need to be able to maintain a competitive edge and fend off competition.

Perhaps the strongest piece of evidence in favor of Micron’s continued success on the AI front is the fact that NVIDIA is actively buying HBM chips from the company.

In February, Micron announced that it was beginning mass production of memory chips to be used in NVIDIA’s H200 GPUs.

With the overwhelming heavyweight of the AI processing world as a customer, it’s likely that Micron could enjoy a long and steep growth runway through the rest of 2024 and into 2025.

Investors should be aware, however, that Micron faces competition from two other massive HBM manufacturers, Samsung and SK Hynix. Both of these companies are actively retooling more conventional memory chip production to increase their HBM outputs.

Micron hopes to triple its market share in HBM manufacturing into the middle 20% range over the coming year, but pressure from these other two dominant firms could challenge these plans.

The good news is that demand growth for memory chips will likely provide room for Micron to keep advancing despite pressure from Samsung and Hynix.

A telltale indicator of just how strong demand for these chips will be is the fact that Hynix has already sold out its production capacity for both 2024 and 2025.

Micron is investing in more US manufacturing capacity and looking at additional facilities in Malaysia. As long as demand remains strong for HBMs broadly, there is likely to be more than enough business to go around and keep Micron growing at a steady pace.

Micron also appears to have technological advantages that could keep it in the race despite having a small current market share.

The company claims that its chips require 30% less power than competitive models, a major advantage for companies that are becoming increasingly conscious of the power requirements of AI data centers.

Micron even seems to have edged out Samsung in doing business with NVIDIA, as Samsung’s memory chips ran too hot and required too much power for NVIDIA’s needs.

Is Micron a Buy Now?

In spite of some competitive risks and an optimistic valuation, Micron seems to have considerable potential to produce further returns as it continues to grow.

As long as the market doesn’t sour on AI and tech companies continue to invest heavily in the technology, Micron’s position as a major supplier of HBM chips offers the potential for both revenue and earnings growth.

As a high-growth, high-value stock, Micron does carry its risks. However, MU shares could be a good choice for investors looking for AI growth stocks beyond giant names like NVIDIA and AMD.

Like many growth companies, Micron could also benefit from the interest rate cuts the Federal Reserve is expected to pursue in 2024 and 2025. Assuming Micron keeps executing well and demand for HBMs remains strong, it’s quite possible that MU could continue to outperform the broader market.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.