According to the World Semiconductor Trade Statistics (WSTS), the semiconductor industry is expected to generate $611 billion in revenue this year, which would be a 16% jump from last year’s levels, and the good thing is that growth will continue by 2025 will continue. and with an estimated turnover increase of 12.5% next year.
Artificial intelligence (AI) has emerged as one of the key reasons behind the healthy growth of the semiconductor industry. The proliferation of this technology has led to an increase in demand for multiple types of chips, ranging from application-specific integrated circuits (ASICs) to processors and memory.
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Companies like Nvidia (NASDAQ: NVDA) And Micron technology (NASDAQ:MU) have proven to be major beneficiaries of the growth in AI-driven semiconductor demand. Nvidia’s dominant position in AI graphics processing units (GPUs) has led to eye-popping growth in sales and profits in recent quarters, with the company’s shares up 193% this year.
Micron, on the other hand, has also stepped on the gas lately, although its 27% share price rise pales in comparison to Nvidia’s. In this article, we’ll take a closer look at the prospects and valuation of both companies to find out which of these two is the best AI stock to buy right now.
The case for Nvidia
Demand for data center GPUs has simply increased in recent years as the race to train and deploy AI models has intensified. Nvidia has emerged as the go-to supplier of data center GPUs, with an estimated 98% of this market by 2023. The company sold an estimated 3.76 million data center GPUs last year, up 42% from the previous year.
The good news for Nvidia investors is that demand for AI GPUs remains robust. Global Market Insights estimates that the data center GPU market could achieve an annual growth rate of 28% through 2032. Given Nvidia’s dominant position in this market, it’s easy to see why the company’s GPU shipments are expected to increase in 2025.
For example, market research firm TrendForce predicts a 55% increase in shipments of Nvidia’s high-end GPUs next year, driven by the arrival of the company’s new Blackwell chips. There is a possibility that Nvidia could generate data center revenue of $200 billion next year, which would be nearly double the current fiscal year’s revenue of $98 billion (Nvidia reported $49 billion in data center revenue in the first six months of this year). the current financial year).
If that is indeed the case, Nvidia could easily crush Wall Street’s revenue expectations in the next fiscal year. The company is expected to end the current fiscal year 2025 with just under $126 billion in revenues, which would be more than double the $60.9 billion it achieved in the previous fiscal year.
As the chart above tells us, analysts expect Nvidia’s revenue to rise another 42% in the next fiscal year, followed by a 17% increase in fiscal 2027. However, there’s a good chance Nvidia can beat these estimates thanks to its growth in emerging but fast-growing niches such as data center networking, sovereign AI and enterprise AI software.
These various catalysts suggest that Nvidia is on track to remain a top AI stock going forward as it looks to expand its reach into markets beyond just data center GPUs.
The case for Micron technology
Demand for memory chips used by Nvidia in their AI GPUs has skyrocketed, leading to a massive turnaround in Micron Technology’s fortunes. The memory specialist ended fiscal 2024 (which ended August 29) with a 61% sales spike to $25.1 billion and posted a profit of $1.30 per share, compared to a loss of $4.45 per share in the same quarter last year year.
Micron management pointed out in its recent earnings release that “robust demand for AI has driven a surge in our data center DRAM products and our industry-leading high-bandwidth memory.” The good thing is that the memory industry is expected to maintain its great momentum into 2025. According to TrendForce, the dynamic random access memory (DRAM) market could see a 51% increase in sales to $136.5 billion next year, driven by growing consumption of high-bandwidth memory (HBM) deployed in AI chips.
Considering that DRAM accounted for 70% of Micron’s total revenue in the previous fiscal year, this market’s healthy prospects bode well for the chipmaker. Better yet, the NAND flash storage market (which generates the rest of Micron’s revenue) is expected to grow 29% by 2025 and generate $87 billion in revenue.
This sunny end-market outlook indicates why Micron’s expectations for the current quarter are extremely solid. The company expects first-quarter fiscal 2025 revenue of $8.7 billion, along with non-GAAP (adjusted) earnings of $1.74 per share. The topline estimate points to an increase of 84% over the same period last year, indicating that Micron is on track to deliver even stronger growth in the current fiscal year.
Consensus estimates compiled by Yahoo! Treasury forecasts that Micron’s revenue will rise 52% this fiscal year to $38.2 billion, followed by a 20% increase in fiscal 2026 to $45.7 billion. Net growth is also expected to remain robust, compared to last fiscal year’s $1.30 per share.
So like Nvidia, Micron looks like a solid AI stock. But if you had to choose between these two names, which would you buy?
The verdict
The above discussion tells us that both Micron and Nvidia are on track to achieve impressive levels of growth thanks to the AI-driven demand for their chips. However, if you want to choose between these two semiconductor companies to benefit from the AI boom, a closer look at their valuations will make the choice easier.
As the chart below tells us, Micron is significantly cheaper than Nvidia.
Of course, Nvidia seems to deserve a premium valuation thanks to its impressive share of the AI chip market, but the pace at which Micron is growing can’t be ignored either. So, investors looking for a mix of value and growth may want to consider buying shares of Micron Technology now for its valuation and robust earnings growth prospects that could help this tech stock maintain its new-found momentum and jump higher.
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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Nvidia. The Motley Fool has a disclosure policy.
Better Artificial Intelligence (AI) Stock: Nvidia vs. Micron Technology was originally published by The Motley Fool
