1 spectacular semiconductor stock down 21% that you’ll wish you had bought on the dip

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

But the AI ​​landscape is growing rapidly and other semiconductor companies are also seeing significant demand for their hardware. Micron technology (MU -2.17%) is a leading provider of memory and storage chips, which are critical for the development of AI in the data center, but also for processing AI workloads in computers and smartphones.

Micron just released its latest financial results for the fourth quarter of fiscal 2024 (ended August 29), and saw incredible growth across the company thanks to AI-driven demand. The stock is currently trading 21% below its all-time high (set earlier this year). Now could be a good time to buy for the following reasons.

AI has increasing storage capacity

Memory chips complement the data center GPUs provided by Nvidia. They store information in an operational state so it can be accessed immediately, which is essential for data-intensive AI workloads. AI has extremely high capacity memory chips, and Micron’s HBM3E (High-Bandwidth Memory) solutions are among the best in the industry.

In fact, Micron’s latest HBM3E 36 gigabyte (GB) devices offer up to 50% more capacity than any other device on the market while using 20% ​​less energy. By 2026, the company’s data center storage solutions are completely sold out, which isn’t surprising since Nvidia is using its HBM3E in the new H200 GPU and possibly the upcoming Blackwell-based B200 GPU as well.

Micron believes it can maintain its technological supremacy in the HBM segment as the company is already working on HBM4E. The official launch is still a few years away, but it will provide a significant leap in capacity to drive the next stage of the AI ​​revolution. Staying ahead is crucial because the market for HBM in the data center was worth just $4 billion in 2023, but Micron expects it to exceed $25 billion in 2025 will – a whopping growth of 525% in just two years!

But Micron’s AI capabilities extend beyond the data center. Companies are racing to bring AI personal computers to market for consumers and businesses, and Micron says most of them have a DRAM (memory) capacity of at least 16 gigabytes, and up to 16 gigabytes in the premium models to 64 GB. Last year, the average DRAM content in the PC industry was 12 GB, so the capacity requirement is increasing sharply, which has a direct positive impact on Micron’s sales.

The smartphone industry is experiencing a similar change. Most Android-based device manufacturers have recently launched AI-enabled models, and in many cases they come equipped with it twice the DRAM capacity of last year’s models. Micron’s LP5X memory is used by all Tier 1 Android smartphone manufacturers worldwide, making it the leader in this segment by a wide margin.

Micron’s sales are increasing rapidly

Micron reported fourth-quarter revenue of $7.75 billion, up 93% from the same period last year. This represents an acceleration from the company’s 81% revenue growth in the third quarter, showing how quickly demand is increasing.

The result was even stronger beneath the surface, driven by $3 billion in computing and networking (data center) revenue, up a whopping 152% year-over-year.

Tight supply of HBM chips for the data center also contributed to a sharp increase in Micron’s gross profit margin in the fourth quarter. It stood at 35.3%, a sharp increase from 26.9% just three months earlier and an even larger jump of 10.8%. reduce in the same quarter last year (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 compared to the same period last year.

Micron expects to achieve further strength across the board in the upcoming first quarter of fiscal 2025 (ending November 30). Revenue is expected to be $8.7 billion, up 85% year over year, with earnings per share of $1.54.

Micron stock looks like a great value right now

Micron posted total earnings per share of just $0.70 for fiscal 2024 as the company suffered losses in the first half of the year. Therefore, it is difficult to value the company based on its profit over the last 12 months. But Wall Street expects Micron’s earnings per share to rise to $8.79 in fiscal 2025.

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

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

For these reasons, I think the valuation gap between the two stocks is likely to narrow. Ultimately, Micron shares would have to gain 28% from here to regain their all-time high of around $141, which they reached in June. Plus, loud The Wall Street JournalThe consensus price target for Micron shares is $157.71, implying even further upside potential beyond the record high.

Given the strong results Micron just reported and its guidance for the coming quarter, now seems like a good time to buy its shares.