1 A Spectacular 21% Drop in Semiconductor Stocks You Want to Buy in a Heartbeat

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

However, the AI ​​landscape is evolving rapidly, and other semiconductor companies are also experiencing significant demand for their equipment. Micron technology (NASDAQ:MU) is a leading supplier of memory and storage chips that are crucial for the development of artificial intelligence in data centers, but also for processing AI workloads in computers and smartphones.

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

Artificial intelligence requires more and more memory

The memory chips complement data center graphics processors provided by Nvidia. They store information in a ready state so it can be called up immediately, which is essential for data-intensive AI workloads. Artificial intelligence requires extremely high memory capacity, and Micron’s HBM3E (High Bandwidth Memory) solutions are among the best in the industry.

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

Micron believes it will maintain its technological lead in the HBM segment as it is already working on HBM4E. The official launch is still a few years away, but it will offer a significant leap in its ability to power the next stage of the AI ​​revolution. Maintaining the lead is key because the data center HBM market was worth just $4 billion in 2023, but Micron expects it to reach $25 billion in 2025, representing a massive 525% growth in just two years!

But Micron’s AI capabilities extend beyond the data center. Companies are racing to introduce AI PCs to consumers and enterprises, and Micron says most of them have a minimum DRAM (memory) capacity of 16 gigabytes, up to 64 GB on premium models. Last year, the average DRAM content in the PC industry was 12 GB, so capacity requirements are increasing, which directly affects Micron’s revenues.

The smartphone industry is experiencing a similar shift. Most Android device manufacturers have recently introduced AI-enabled models, and in many cases they come with them twice DRAM capacity of last year’s models. Micron LP5X memory is used by every first-class Android smartphone manufacturer in the world, so it is the leader in this segment by a clear advantage.

Image source: Getty Images.

Micron’s revenues are growing

Micron generated revenue of $7.75 billion in the fourth quarter, up 93% from the year-ago period. This marked an acceleration from the company’s 81% revenue growth in the third quarter, underscoring how quickly demand is growing.

The result was even better below the surface, as it included $3 billion in compute and networking (data center) revenues, which was a massive 152% year-over-year growth.

Tight supply of HBM data center chips also contributed to a sharp increase in Micron’s gross profit margin in the fourth quarter. It was 35.3%, a big increase from 26.9% just three months earlier and an even bigger jump from 10.8%. reduction in the last quarter (when the company was struggling with excess supply).

As a result, Micron’s earnings per share (EPS) were $0.79, a significant improvement from $1.31 loss per share from the previous year.

Micron expects to deliver further strength across the board in the upcoming first quarter of fiscal 2025 (ending November 30). Its revenue is forecast to be $8.7 billion, which would represent 85% year-over-year growth, with EPS of $1.54.

Micron stock looks like a great value right now

Micron generated just $0.70 in total EPS in fiscal 2024 as it lost money in the first half of the year. Therefore, it is difficult to value the company based on profits for the last 12 months. However, Wall Street expects Micron’s EPS to rise to $8.79 in fiscal 2025.

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

I’m not trying to compare Micron to one of the hottest semiconductor stocks ever, but if you believe that Nvidia is going to sell more data center GPUs, then Micron should also see parallel development of its HBM3E solutions. Additionally, Micron has the added advantage of a potential AI-driven demand wave in the PC and smartphone segments.

For these reasons, I believe the valuation gap between these two stocks will likely narrow. Ultimately, Micron stock would need to gain 28% from here to regain its all-time high of around $141, which was set in June. Besides, according to Wall Street Journalthe consensus price target for Micron stock is $157.71, which would represent an even further upside above the record high.

Given the strong results Micron has just reported and its forecast for the coming quarter, it seems like a great time to buy its stock.

Is it worth investing $1,000 in Micron technology now?

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