Nvidia (NASDAQ: NVDA) has been one of the market’s hottest chip stocks. The company soared as the artificial intelligence (AI) market expanded rapidly – driving companies to buy its high-end data center GPUs to handle complex AI tasks.
Image source: Micron.
Could Micron (NASDAQ: MU) be the one to follow in Nvidia’s footsteps? Micron is a key producer of DRAM and NAND memory chips worldwide. Let’s delve into the differences between Micron and Nvidia to gauge Micron’s potential to replicate Nvidia’s success.
Deciphering the Distinctiveness of Micron and Nvidia
Micron stands out as the designer and manufacturer of its memory chips within its foundries, while Nvidia, in contrast, designs chips but outsources production to third-party foundries like Samsung and Taiwan Semiconductor Manufacturing Company. Micron’s capital-intensive model operates at lower margins than Nvidia.
Micron’s memory chips are attractively priced compared to Nvidia’s GPUs, and it lacks the market dominance that Nvidia enjoys. Micron ranks third globally in DRAM chip supply and fifth in NAND chips, whereas Nvidia reigns supreme with 80% of the discrete GPU market share. This casts Micron in a more commoditized arena, vulnerable to market price fluctuations and cyclical shifts in the memory chip industry.
Nonetheless, Micron’s edge lies in its production of denser and more energy-efficient DRAM and NAND chips compared to competitors like Samsung and SK Hynix. This technological advantage secures Micron’s patronage from producers in the high-end PC, mobile, and server sectors.
Projections for Micron: Riding the Growth Wave
Micron faced challenges over the last two years as a slump hit due to declining PC shipments post-pandemic, the winding down of the 5G upgrade cycle, and macro headwinds impacting chip sales to enterprise and industrial sectors. The Chinese government’s restriction on infrastructure providers from purchasing Micron’s chips added to the hurdles, offsetting the company’s growth in the automotive and AI markets.
While Micron’s revenue dipped by 49% in fiscal 2023, it is expected to rebound with a 56% rise in fiscal 2024 and another 43% in fiscal 2025. Three tailwinds are expected to drive growth: stabilization in PC and smartphone markets, increased chip sales to enterprise, industrial, and automotive sectors, and the burgeoning generative AI market creating demand for upgraded memory chips in data centers.
CEO Sanjay Mehrotra emphasized the early phase of a multiyear growth cycle fuelled by AI, destined to reshape various industries. For instance, AI-embedded phones are forecasted to entail 50% to 100% greater DRAM content than current non-AI flagship phones.
Forecasting the Inevitable: Micron in a Cyclical Downturn
Micron’s next growth phase may prolong but will eventually face a downturn. Historically, memory prices surge during market boom phases like smartphones, cloud data centers, and AI, leading companies to hoard chips. Consequently, manufacturers ramp up production, saturating the market once the trend wanes – resulting in oversupply and price drops. Micron witnessed similar setbacks in 2019 and 2022, with expectations for a repeat as the AI market matures.
Comparatively, Nvidia’s market dominance affords it better resilience during downturns than Micron. Nvidia’s control of the GPU market gives it more pricing power, shielding it from drastic cyclical declines observed in Micron.
Assessing Micron’s Trajectory: A Titan in the Making?
Despite Micron trading at under 4 times its projected sales, potential for growth looms as a new cycle unfolds. With a projected revenue compound annual growth rate (CAGR) of 30% for the next five years, stock valuation could skyrocket – albeit not matching Nvidia’s meteoric rise. Micron emerges as a promising semiconductor entity, with the potential for significant gains, albeit eventual cyclical downturns potentially curbing its ascent.
Can Micron truly ascend to Nvidia’s heights? Only time will unfold the saga, but for now, Micron stands as a beacon of potential in the ever-evolving semiconductor realm.