These chip stocks play a key role in the widespread adoption of AI and are poised for robust long-term growth.
Nvidia (NVDA 0.69%) and Micron Technology (MU 1.82%) stocks have delivered healthy stock market gains so far in 2024, with one outperforming the other by a large margin: Nvidia shares are up an astounding 130% year to date, while Micron is up a relatively modest 29%.
Nvidia’s revenue and profits have grown at a phenomenal pace in recent quarters thanks to its dominance of the artificial intelligence (AI) datacenter graphics card market, but a closer look at Micron shows that the memory specialist is experiencing a major turnaround in fortunes thanks to AI.
So, if you had to choose between these two AI stocks for your portfolio, which one should you buy? Let’s find out.
For Nvidia
The AI chip market is experiencing rapid growth as companies seek to acquire powerful hardware to train and deploy AI models and services. By one estimate, the AI chip market could see annual growth of approximately 41% by 2032, generating more than $1.1 trillion in revenue.
Nvidia is one of the best positioned to capitalize on this huge end market opportunity. The company has established a significant lead in the AI data center graphics processing units (GPUs) space, with an estimated market share of over 90%, which is why Nvidia has seen tremendous growth in recent quarters.
NVDA Revenues (TTM) data from YCharts
More importantly, NVIDIA’s AI-driven growth appears sustainable in the long term as the company looks to expand beyond hardware to focus more on AI-related niche markets. For example, NVIDIA’s AI Foundry solution allows customers to build custom generative AI models for their use cases. The service has become increasingly popular among customers, with companies such as Accenture, Aramco, and Uber using it to develop AI applications.
Nvidia’s customers don’t need to invest in expensive hardware to develop their own AI models, they can simply get to work developing and deploying their applications. Demand for cloud-based AI services is predicted to reach a massive $523 billion in 2031, which could create new growth opportunities for Nvidia.
Meanwhile, governments are also beginning to adopt Nvidia’s AI solutions. The company expects government revenue to hit $10 billion this year. By comparison, government AI revenue was zero last year. Going forward, Nvidia’s government business could expand as countries accelerate their AI spending.
Nvidia is projecting its market cap to reach a massive $1 trillion, and it is likely to maintain impressive growth over the long term. Investors who have this growth stock in their portfolio would be well advised to hold onto it for the long term.
Micron Technology Case Study
While Micron Technology’s stock price gains aren’t as phenomenal as Nvidia’s in 2024, a closer look at Micron’s growth suggests the market may be underestimating the company’s AI-driven growth potential.
For the third quarter of fiscal 2024 (ended May 30), Micron reported an astounding 81% increase in revenue year over year to $6.8 billion. AI was the driving force behind this impressive growth, with Micron’s high-bandwidth memory (HBM) chips being used in AI graphics cards by Nvidia and others.
The company’s management stated in a recent earnings call:
The company’s HBM shipment growth began in the third quarter and drove HBM3E revenue of over $100 million during the quarter, positively impacting DRAM and overall company margins. The company expects to generate hundreds of millions of dollars in revenue from HBM in fiscal 2024 and billions of dollars in revenue in fiscal 2025.
Even better, demand for Micron’s HBM chips is so high that the company has already sold out of its production capacity for 2024 and 2025. More importantly, Micron is looking to push the limits of the HBM market with more advanced chips that are not only more powerful but also more power efficient. This is a smart move, because HBM market revenue could grow from just $1.8 billion last year to nearly $86 billion in 2030, a compound annual growth rate of 68%.
Therefore, Micron’s focus on maintaining its HBM market leadership could pay big dividends in the long run, leading to solid revenue growth for the company. But is Micron a better AI choice than Nvidia? Let’s find out.
verdict
Nvidia and Micron are both high-growth companies. But one of them is trading at a significantly cheaper valuation: Micron trades at 13 times forward earnings, while Nvidia is more expensive at 47 times forward earnings.
Of course, Nvidia’s higher earnings multiple is justified thanks to the company’s much faster growth, which is why growth-focused investors can still consider buying the company’s shares. However, investors looking for a combination of growth and value might want to buy Micron Technology, as its recent impressive growth could drive impressive gains for this AI stock.
So, investors can choose one of these AI stocks for their portfolios, or even consider buying both. Nvidia and Micron are likely to remain key players driving the growth of the AI market for a long time to come.
Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Accenture Plc, Nvidia, and Uber Technologies. The Motley Fool recommends long January 2025 $290 calls on Accenture Plc and short January 2025 $310 calls on Accenture Plc. The Motley Fool has a disclosure policy.
