Could Micron Technology Become the Next Nvidia?

Nvidia (NVDA -1.98%) has turned out to be a wonderful investment above the decades as the chipmaker’s dominance of the graphics processing device (GPU) current market has assisted it grow speedily.

From creating just $4 billion in earnings in fiscal 2012 when the use of graphics playing cards was constrained to only a handful of applications these kinds of as individual desktops (PCs) and cellular products for gaming, Nvidia has come a prolonged way. GPUs are now being deployed in large volumes across a wide assortment of applications, which include computer systems, consoles, knowledge centers, workstations, and self-driving cars.

This points out why Nvidia completed fiscal 2022 (which finished Jan. 30) with a document profits of just about $27 billion. The tech giant’s extraordinary development trajectory is established to keep on, as analysts expect its prime line to exceed $40 billion by fiscal 2024. That will not likely be astonishing, as Nvidia is the dominant player in the discrete graphics card market which is constructed for robust long-time period advancement.

But traders who have missed Nvidia stock’s scorching, marketplace-beating rally more than the earlier decade require not be unhappy. That’s because Micron Engineering (MU -.91%) could switch out to be the upcoming large semiconductor perform and replicate Nvidia-like gains. Let us see why that may perhaps be the situation.

Micron Technology is benefiting from the increasing software of memory chips

Micron Technologies supplies memory chips that are applied for computing and storage in various purposes such as PCs, mobile computing gadgets, info centers, gaming consoles, factories, automobiles, and quite a few others. Just like Nvidia, even Micron’s current market was confined to apps this sort of as computers and cellular telephones a 10 years ago, and products utilised to eat a ton significantly less memory than they do now.

For some viewpoint, Micron had generated $8.2 billion in revenue in fiscal 2012, even though its reduction stood at $1.04 for every share many thanks to the cyclical character of the memory sector. The chipmaker has been historically impacted by booms and busts in memory selling prices in the earlier, with its earnings and margins nosediving when the memory sector was faced with an oversupply or weak demand.

Even so, it appears that the memory business is not impacted by cyclicity any more, many thanks to the spurt in apps of DRAM (dynamic random accessibility memory) and NAND flash memory. This is apparent from Micron’s fantastic development in the ongoing fiscal calendar year, despite concerns on Wall Street past calendar year that memory price ranges are set to tumble.

The business has produced $15.5 billion in revenue for the to start with six months of fiscal 2022, up 29% over the prior-calendar year time period. Analysts assume Micron to complete the fiscal year with almost $34 billion in revenue while anticipating that its fiscal 2023 income would cross $40 billion. For comparison, Micron produced just $8.2 billion in income in fiscal 2022 when the dimensions of its addressable market was scaled-down.

So just like Nvidia, Micron has also received huge from the growing software of the chips that it sells. In fact, both firms are expected to generate identical earnings in a few of a long time, as the dialogue higher than indicates.

Micron is trying to improve its marketplace share

Nvidia’s dominant position in the graphics card market has been the driving pressure guiding the company’s remarkable advancement in excess of the a long time. According to Jon Peddie Analysis, Nvidia managed 81% of the discrete GPU marketplace in the fourth quarter of 2021. The enterprise is also the main company of info middle graphics cards, with current market exploration business Omdia estimating that it controlled in excess of 80% of this booming place in 2020.

Micron, on the other hand, just isn’t the biggest player in the memory market. The firm controlled 23.5% of the DRAM memory industry in 2020, trailing Samsung and SK Hynix, which managed 41.7% and 29.4% of this current market, respectively. Nonetheless, Micron has been striving to choose share absent from its rivals on the back again of its product or service growth moves, and the great part is that its moves are bearing fruit.

As it turns out, Micron reportedly will make the most superior DRAM node at current as in comparison to its rivals. And now, the company is on keep track of to begin the output of DRAM chips dependent on the intense ultraviolet (EUV) lithography procedure from 2024 — a go that is expected to assistance it manage a technologies lead about rivals.

All this suggests that Micron could be on its way to capturing a even bigger share of the enormous DRAM industry that clocked an estimated $92.5 billion in profits final 12 months. What’s far more, worldwide DRAM earnings is expected to exceed $200 billion by 2028, which should support Micron sustain its sturdy expansion in the long run.

Why Micron could become the next Nvidia

Micron is a greater organization than Nvidia in terms of earnings. The memory specialist has created just in excess of $31 billion in revenue over the trailing 12 months, greater than Nvidia’s $26.9 billion. Nonetheless, Nvidia’s highly-priced valuation suggests that it is a much bigger corporation than Micron in terms of current market capitalization.

Nvidia has a industry capitalization of $505 billion as as opposed to Micron’s $79 billion. Nevertheless, Nvidia trades at a loaded 52 times earnings as in contrast to Micron’s trailing earnings several of 9. Micron’s sales various of 2.65 is also significantly lower than Nvidia’s a number of of just about 21. This explains why Nvidia’s valuation eclipses that of Micron by a enormous margin.

Having said that, analysts estimate equally Micron and Nvidia will clock identical once-a-year earnings expansion of 30% for the next five a long time. So it would not be shocking to see Micron trade at a much more pricey valuation in the foreseeable future considering the fact that it seems to be perfectly put to retain developing its earnings and income at a nice pace.

All this implies that Micron Know-how has the opportunity to turn out to be the future Nvidia. The memory professional is making strong profits and earnings advancement and working to boost its sector share, and it operates in an marketplace that’s built for expansion in the lengthy operate. That’s why traders searching to buy a growth stock at a affordable valuation might take into account buying Micron correct now prior to it results in being a lot more pricey like Nvidia.