Nvidia has dominated the AI story in the stock market, captivating investors and the media after rising 2,190% over the past five years and briefly becoming the world’s most valuable company (currently No. 2).
However, Nvidia is far from the only option in AI or semiconductors. One chipmaker just reported more than 400% year-over-year data center revenue growth and 84% total revenue growth to $8.7 billion in its latest earnings report (for the quarter ending November 28).
I’m talking about Micron technology (NASDAQ:MU)the memory chip specialist that, despite this enormous growth, is surprisingly down 44% from its recent peak. That discount and its potential in AI make the stock an attractive buy right now. Let’s first review the company’s recent results and then dive into the buying case.
Micron is a leader in memory chips, including DRAM, NAND and high-bandwidth memory (HBM). The company is also an integrated device manufacturer, meaning it both designs and produces its own chips Intel And Samsung Doing.
Memory chips are a highly cyclical industry, sensitive to price fluctuations and industry gluts, and owning its own foundries gives Micron more exposure to the boom and bust cycle in the semiconductor industry. Running foundries requires high levels of capital, but the integrated business model allows the company to better utilize margins when the business performs well.
The chart below, which shows Micron’s price compared to its previous high, gives an idea of how volatile the stock has been. As you can see, the stock has fallen 40% or more four times in the past decade before hitting a new all-time high.
Cyclicity and volatility are part of the risk of investing in Micron, but there’s no doubt about that semiconductor sector is currently in a boom period, driven by the explosive growth of AI, although some subsectors such as PCs and smartphones are weaker. In addition to Nvidia’s enormous growth, the sector is also changing Taiwanese semiconductor manufacturing recently reported 36% revenue growth in the third quarter to $23.5 billion, indicating strong growth in the sector.
Management noted strong demand for AI and said data center revenue surpassed 50% of total revenue for the first time in the quarter, following a path Nvidia first set in the chip sector. That now gets the vast majority of Micron’s revenue from the data center, where AI computing takes place.
After reporting fiscal first-quarter results on Wednesday, Micron shares fell as much as 19% on Thursday on weak second-quarter guidance. However, the company has a history of conservative policies, and the weakness has been due to consumer markets such as smartphones, while the AI business remains strong.