Memory-chip giant Micron Technology (NASDAQ:MU) has garnered headlines and captured investor attention lately, and rightfully so.
After losing roughly two-thirds of its value from late 2014 to early 2016, Micron stock has essentially marched straight upward over the past 12 months, to the tune of a 150% increase.
However, the commoditized nature of Micron's memory business tends to make Micron something of a boom-and-bust enterprise. The company can generate ample profits when memory prices are strong, but its earnings will fall off a cliff when, prices soften. My thoughts on Micron's risk-reward profile are well documented.
The good news is that the semiconductor industry has plenty of companies with far more favorable long-term dynamics. Here are three of them.
NVIDIA's (NASDAQ:NVDA) stock is up 226% over the past 12 months, as the maker of graphics processing units (GPUs) is one of the few companies to match Micron's recent rally. Even better, being the leading graphics-chip maker aligns the company with some of the fastest-growing areas of the technology market.
GPUs have become an area of intense interest in recent years, as technologies including artificial intelligence, deep learning, self-driving cars, and more rely on converting real-world images into usable digital information. NVIDIA has benefited, having formed partnerships with automakers including Toyota, Audi, BMW, Tesla, and many more to provide the GPUs for their various autonomous-vehicle initiatives.
NVIDIA's enviable competitive position should allow it to grow at above average rates for years to come. In fact, the consensus among sell-side analysts calls for NVIDIA to grow sales by 19.4% this year and 12.4% next year. Its shares trade at a decent premium to the market, and that's to be expected, but the company's long-term fundamentals make it one of the top growth stocks in the semiconductor market -- and a far more appealing long-term holding than Micron.
The world's largest semiconductor company, Intel (NASDAQ:INTC) dominates the realm of PC and server microprocessors. The de facto standardization of x86 architecture in each of these large global markets, along with Intel's unique ability to fund massive research-and-development investments, allows the company to consistently produce the fastest microprocessors. The result is an enviable gross margin that compares favorably against the likes of Advanced Micro Devices, the longtime second fiddle in the PC and server chip market.
As Intel's core businesses are mature, the company has been focusing on increasing its exposure to emerging growth markets. It's done so by investing aggressively in its budding Internet of Things (IoT) chips business and by acquiring artificial-intelligence companies, most notably with its $15.3 billion buyout earlier this year of Israeli-based self-driving-car company Mobileye earlier this year. Especially for investors seeking income from their investments, Intel is among the best options in the chip space today.
Shares of video-processing chip company Ambarella (NASDAQ:AMBA) have fallen back to Earth over the past two years, though they've still trounced the market indices over longer time horizons.
However, the reset in investor expectations reflects the company's continued evolution, from something of a one-trick pony to a diversified, mature company capable of producing sustainable, above-average growth for years to come.
Ambarella designs, produces, and sells power-efficient high-definition video-compression and image-processing semiconductors. The company rose to prominence as the go-to chip supplier for GoPro's action camera, and revenue concentration remains an important risk factor for the company today. The company's five largest customers accounted for 56% of total fiscal 2017 sales.
That number has, however, declined in each of the past two years, and the long-term nature of Ambarella's many growth markets suggest that it will continue to fall. Ambarella sees opportunities to become a leading supplier of image processing chips for growing industries including drones, dashboard cameras, wearables, internet-connected security cameras, and much more.
Perhaps most appealing, though, is that Ambarella's stock carries current and forward P/E ratios of 29.3 and 20.8 times earnings, respectively. Contrast that against its consensus average five-year EPS growth estimate of 16.3% per year, and Ambarella stock starts to look like an attractively priced growth stock whose solid business fundamentals make it a far superior option to Micron for long-term semiconductor investors.
Andrew Tonner has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Ambarella, GoPro, Nvidia, and Tesla. The Motley Fool has the following options: short January 2019 $12 calls on GoPro and long January 2019 $12 puts on GoPro. The Motley Fool recommends BMW and Intel. The Motley Fool has a disclosure policy.