Down 44%, this AI stock is a screaming buy right now (hint: it’s not Nvidia)

Nvidia has dominated the AI ​​narrative in the stock market, captivating investors and the media after soaring 2,190% over the past five years and becoming for a brief period the most valuable company in the world (it is currently #2).

However, Nvidia is far from the only opportunity in the AI ​​or semiconductor space. In fact, one chipmaker just reported data center revenue growth of more than 400% year over year and overall revenue growth of 84% to $8.7 billion in its latest earnings report (for the quarter ending November 28).

I’m talking about Micron technology (UM 3.48%)the memory chip specialist, which is surprisingly down 44% from its recent peak, despite this meteoric growth. This discount and its AI potential make the stock an attractive buy right now. Let’s first look at the company’s recent results, and then address the buy case.

What is Micron?

Micron is a leader in memory chips, including DRAM, NAND, and high-bandwidth memory (HBM). The company is also an integrated device manufacturer, meaning it designs and manufactures its own chips like Intel And Samsung TO DO.

Memory chips are a highly cyclical industry, subject to price fluctuations and industry gluts, and owning its own foundries exposes Micron more to the boom and bust cycles of the semiconductor industry. Running foundries requires a high level of capital, but the integrated business model allows the company to better capture margins when the business is doing well.

The chart below, which shows Micron’s price relative to its previous high, gives an idea of ​​the stock’s volatility. As you can see, over the last decade the stock fell 40% or more four times before hitting a new all-time high.

Data by YCharts.

Cyclicity and volatility are part of the risk of investing in Micron, but there is no doubt that the semiconductor sector is currently booming, driven by the explosive growth of AI, although some under -sectors like PCs and smartphones are weaker. In addition to Nvidia’s meteoric growth, the industry barometer Semiconductor manufacturing in Taiwan recently reported third-quarter revenue growth of 36% to $23.5 billion, reflecting strong industry growth.

Noting strong demand for AI, management said data center revenue exceeded 50% of total revenue for the first time in the quarter, following a path first charted by Nvidia in the chip sector. This now represents the vast majority of Micron’s revenue from the data center, where AI computing takes place.

Why Micron stock fell following the report

After reporting its first-quarter financial results on Wednesday, Micron stock plunged as much as 19% on Thursday due to its weak second-quarter guidance. However, the company has always been conservative in its guidance, and the weakness was due to consumer markets such as smartphones, while the AI ​​sector remains strong.

HBM, the part of the business closely tied to AI, is seeing impressive growth. The company said it was on track to meet its HBM target for the financial year and achieve a “substantial record” in HBM revenue, including “significantly improved profitability and free cash flow” during the year. ‘exercise.

Micron expects second-quarter revenue and adjusted earnings per share (EPS) to decline sequentially from $8.7 billion to $7.9 billion, and adjusted EPS to be 1. $79 to $1.43.

However, management’s explanation for the weak outlook should reassure investors. CEO Sanjay Mehrotra said the company previously warned that seasonality and customer inventory reduction in consumer segments like smartphones would affect second-quarter results. He added: “We are now seeing a more pronounced impact from customer inventory reductions,” and continued: “We expect this adjustment period to be relatively brief and expect customer inventories to reach higher levels. healthy by spring, allowing for larger bit shipments in the second half of the year. fiscal year and calendar 2025.”

In other words, the issues behind the weak second-quarter guidance look more like a speed bump for the company than a lasting headwind, and management expects to return to sequential growth in the second half. For a stock to fall 17% following a one-time forecast cut looks like a misread by the market and a buying opportunity for investors.

Why Micron is an obvious buy

A sell-off driven by short-term news often presents a good buying opportunity, but there’s more to Micron’s buy case than that. Micron is clearly capitalizing on the AI ​​boom with data center revenues increasing and with its largest customer, reportedly Nvidia, now accounting for 13% of its revenue. A close relationship with Nvidia is clearly a tailwind at this stage of the AI ​​boom, as Nvidia just announced 94% year-over-year revenue growth in its third quarter report. quarter.

Micron’s results are notoriously erratic and cyclical, but the company has the ability to generate huge profits in the right circumstances – and those appear to be taking shape as the AI ​​boom takes hold. For example, Micron expects the addressable market for HBM to grow from $16 billion in 2024 to $64 billion in 2028 and $100 billion in 2030. Even if it simply maintains its market share in this segment, its HBM turnover will be multiplied by 4 in four. years and 6x and six years.

Finally, Micron stock is also much cheaper than its AI and chip peers, trading at a forward P/E of just 10 based on this year’s estimates. While these estimates are likely to drop after its guidance, Micron still appears to be a bargain at any price close to this.

Micron investors should watch the chip and AI cycle closely, but the stock has strong upside potential. Getting back to its peak this summer would mean a 75% jump for the stock, and shares could continue to rally over the next couple of years, especially if the data center industry continues to see strong growth.

Micron is the rare AI stock currently offering rapid growth and good value.