Advancing Artificial Intelligence (AI) Investment Options: Nvidia vs. Micron Technologies

Advancing Artificial Intelligence (AI) Investment Options: Nvidia vs. Micron Technologies

The semiconductor sector is projected to garner $611 billion in revenues this year, as per World Semiconductor Trade Statistics (WSTS), marking a significant 16% surge from the previous year's figures. Interestingly, this growth trend is set to persist till 2025, with an anticipated 12.5% jump in revenue the next year.

One of the primary drivers behind this exponential growth is the advent of artificial intelligence (AI). The increasing prevalence of AI has spurred a surge in demand for various types of chips, such as application-specific integrated circuits (ASICs), processors, and memory.

Two notable players in this AI-fueled semiconductor boom are Nvidia (NVDA 3.05%) and Micron Technology (MU 1.49%). Nvidia, with its solid footing in AI graphics processing units (GPUs), has enjoyed impressive revenue and earnings growth, with shares surging 193% so far this year.

Micron, in contrast, has demonstrated a notable upswing as well, albeit at a slightly slower pace. Its stock has escalated by 27% as of late. In this article, we delve into the prospects and valuation of both companies to determine which one is the optimal AI investment option at present.

The case for Nvidia

The demand for data center GPUs has experienced a remarkable upswing in recent years due to the escalating competition to develop and implement AI models. Nvidia is a preferred supplier of data center GPUs, commanding an estimated 98% market share in 2023. During the previous year, Nvidia sold approximately 3.76 million data center GPUs, with sales growing by 42% year over year.

The good news for Nvidia investors is that the demand for AI GPUs remains robust. Analysts predict that the data center GPU market will register an annual growth rate of 28% through 2032, largely due to Nvidia's market dominance. Given this, it's reasonable to expect Nvidia's GPU shipments to increase in 2025.

For instance, market research firm TrendForce forecasts a 55% hike in shipments of Nvidia's high-end GPUs next year, spurred by the introduction of its new Blackwell chips. There's a likelihood that Nvidia may generate approximately $200 billion in data center revenue in 2025, nearly doubling its current fiscal year's revenue run rate of $98 billion (Nvidia posted $49 billion in data center revenue during the first half of the current fiscal year).

If this scenario holds true, Nvidia could easily surpass Wall Street's expectations for its revenue in the ensuing fiscal year. The company is expected to close its ongoing fiscal year 2025 with revenue of around $126 billion, which is more than double its $60.9 billion revenue in the previous fiscal year.

As the chart above shows, analysts anticipate Nvidia's revenue will increase by 42% in the subsequent fiscal year, followed by a 17% increase in fiscal 2027. However, there's a strong possibility that Nvidia may outperform these estimates due to its robust growth in emerging but fast-growing niches, such as data center networking, sovereign AI, and enterprise AI software.

These diverse catalysts suggest that Nvidia is poised to maintain its top position as an AI stock in the future, as it expands its presence beyond just data center GPUs.

The case for Micron Technology

The demand for memory chips used in AI GPUs has skyrocketed, leading to a dramatic turnaround for Micron Technology. During the previous fiscal year (ending Aug. 29), Micron reported a 61% revenue surge to $25.1 billion, posting a profit of $1.30 per share compared to a loss of $4.45 per share in the same quarter last year.

Micron management highlighted in their recent earnings release that "strong AI demand drove a robust ramp of our data center DRAM products and our industry-leading high bandwidth memory." Encouragingly, the memory industry is expected to sustain its impressive growth track in 2025 as well. According to TrendForce, the dynamic random access memory (DRAM) market could expand by 51% in revenue next year to $136.5 billion, driven by the increased consumption of high-bandwidth memory (HBM) used in AI chips.

Given that DRAM accounted for 70% of Micron's total revenue in the previous fiscal year, the robust prospects of this market bode well for Micron. Additionally, the NAND flash storage market, which contributes the remaining 30% of Micron's revenue, is predicted to rise by 29% in 2025, generating $87 billion in revenue.

These promising end-market forecasts validate Micron's optimistic projections for the forthcoming quarter. The company anticipates a revenue of $8.7 billion in the first quarter of fiscal 2025, alongside non-GAAP (adjusted) earnings of $1.74 per share. This topline estimation indicates that Micron is on track to deliver even more spectacular growth in the current fiscal year.

According to aggregated predictions by Yahoo! Finance, Micron's revenue is projected to surge by 52% this fiscal year, reaching an impressive $38.2 billion. This is expected to be followed by a 20% increase in fiscal 2026, bringing the total to $45.7 billion. The company's earnings per share are also forecasted to strengthen, moving from $1.30 in the previous fiscal year.

Like Nvidia, Micron appears to be a reliable option for those seeking out strong AI-related investments. However, when it comes to deciding between these two tech giants, delving into their financial standings can help make an informed decision.

Given the following chart, it's clear that Micron is currently more affordable compared to Nvidia.

While Nvidia arguably deserves its premium valuation due to its considerable stake in the AI chip market, Micron's burgeoning growth trajectory cannot be overlooked. Thus, investors looking for a blend of cost-effectiveness and growth potential might want to consider purchasing Micron Technology shares, taking advantage of its attractive valuation and promising earnings growth prospects, which could help this tech stock maintain its recent upward trajectory and potentially reach even greater heights.

Investors interested in capitalizing on the finance sector's growth, particularly in the field of AI, might consider channeling their funds into strong AI-related investments. Both Nvidia and Micron Technology, as mentioned in the text, have demonstrated impressive growth in this sector.

Nvidia, in particular, is projected to generate approximately $200 billion in data center revenue in 2025, nearly doubling its current fiscal year's revenue run rate of $98 billion. This growth is driven by the robust demand for AI GPUs, as Nvidia continues to dominate the market with an estimated 98% market share in 2023.

Investing in such companies requires a solid understanding of their financial standings to make informed decisions. As the text suggests, while Nvidia may command a premium valuation, Micron's burgeoning growth trajectory and attractive valuation might be appealing to investors seeking a balance of cost-effectiveness and growth potential.

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