The semiconductor industry is expected to generate $611 billion in revenue this year as per World Semiconductor Trade Statistics (WSTS), which would be a jump of 16% from last year's levels, and the good part is that the growth is set to continue in 2025 as well with an estimated increase of 12.5% in revenue next year.
Artificial intelligence (AI) has turned out to be one of the key reasons behind the healthy growth of the semiconductor industry. The proliferation of this technology has driven an increase in demand for multiple types of chips ranging from application-specific integrated circuits (ASICs) to processors to memory.
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Companies such as Nvidia(NASDAQ: NVDA) and Micron Technology(NASDAQ: MU) have turned out to be big beneficiaries of the growth in AI-fueled semiconductor demand. Nvidia's dominant position in AI graphics processing units (GPUs) has led to eye-popping growth in its revenue and earnings in recent quarters, with shares of the company up 193% this year.
Micron, on the other hand, has also stepped on the gas of late, though its stock price jump of 27% pales in comparison to Nvidia's. In this article, we will take a closer look at the prospects and the valuation of both companies to find out which one of these two is the better AI stock to buy right now.
The case for Nvidia
The demand for data center GPUs has simply taken off in the past couple of years as the race to train and deploy AI models has intensified. Nvidia has turned out to be the go-to supplier of data center GPUs, controlling an estimated 98% of this market in 2023. The company sold an estimated 3.76 million data center GPUs last year, an increase of 42% from the preceding year.
The good news for Nvidia investors is that the demand for AI GPUs remains robust. Global Market Insights estimates that the data center GPU market could clock an annual growth rate of 28% through 2032. Given Nvidia's dominant position in this market, it is easy to see why the company's GPU shipments are expected to head higher in 2025.
For instance, market research firm TrendForce forecasts a 55% increase in shipments of Nvidia's high-end GPUs next year, driven by the arrival of the company's new Blackwell chips. There is a possibility that Nvidia may be able to generate data center revenue of $200 billion next year, which would be nearly double the current fiscal year's revenue run rate of $98 billion (Nvidia reported $49 billion in data center revenue in the first six months of the current fiscal year).
If that's indeed the case, Nvidia could easily crush Wall Street's revenue expectations in the next fiscal year. The company is expected to finish its ongoing fiscal year 2025 with just under $126 billion in revenue, which would be more than double the $60.9 billion it delivered in the previous fiscal year.
As the chart above tells us, analysts are expecting Nvidia's revenue to increase another 42% in the next fiscal year, followed by a 17% increase in fiscal 2027. However, there is a strong chance that Nvidia may be able to exceed these estimates thanks to the growth it is clocking in nascent but fast-growing niches such as data center networking, sovereign AI, and enterprise AI software.
These diverse catalysts suggest that Nvidia is on track to remain a top AI stock going forward since it is looking to expand its reach into markets beyond just data center GPUs.
The case for Micron Technology
The demand for memory chips that are used by the likes of Nvidia in their AI GPUs has shot up big time, leading to a massive turnaround in the fortunes of Micron Technology. The memory specialist finished fiscal 2024 (which ended on Aug. 29) with a 61% spike in revenue to $25.1 billion and posted a profit of $1.30 per share as compared to a loss of $4.45 per share in the same quarter last year.
Micron management pointed out in its recent earnings release that "robust AI demand drove a strong ramp of our data center DRAM products and our industry-leading high bandwidth memory." The good part is that the memory industry is expected to sustain its terrific momentum in 2025 as well. According to TrendForce, the dynamic random access memory (DRAM) market could witness a 51% increase in revenue next year to $136.5 billion, driven by the growing consumption of high-bandwidth memory (HBM) that's deployed in AI chips.
Given that DRAM accounted for 70% of Micron's total revenue in the previous fiscal year, the healthy prospects of this market bode well for the chipmaker. Even better, the NAND flash storage market (which produces the rest of Micron's revenue) is expected to increase by 29% in 2025 and generate $87 billion in revenue.
These sunny end-market prospects indicate why Micron's guidance for the current quarter is extremely solid. The company is anticipating $8.7 billion in revenue in the first quarter of fiscal 2025, along with non-GAAP (adjusted) earnings of $1.74 per share. The top-line estimate points toward an 84% increase from the same period last year, suggesting that Micron is on track to deliver even stronger growth in the current fiscal year.
Consensus estimates compiled by Yahoo! Finance are forecasting Micron's revenue to increase 52% in this fiscal year to $38.2 billion, followed by a 20% increase in fiscal 2026 to $45.7 billion. The bottom-line growth is expected to remain robust as well when compared to last fiscal year's reading of $1.30 per share.
So, just like Nvidia, Micron looks like a solid AI stock. But if you had to choose from one of these two names, which one should you be buying?
The verdict
The above discussion tells us that both Micron and Nvidia are on track to deliver impressive levels of growth thanks to AI-driven demand for their chips. However, if you're looking to choose from these two semiconductor companies to capitalize on the AI boom, a closer look at their valuations will make the choice easier.
As the chart below tells us, Micron is significantly cheaper than Nvidia.
Of course, Nvidia seems deserving of a premium valuation thanks to its impressive share of the AI chip market, but the pace at which Micron is growing cannot be ignored, either. So, investors looking for a mix of value and growth can consider buying shares of Micron Technology right now because of its valuation and robust earnings growth prospects that could help this tech stock sustain its newly found momentum and jump higher.
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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool has a disclosure policy.
