Nvidia (NVDA -3.33%) has turned out to be a terrific investment over the years as the chipmaker's dominance of the graphics processing unit (GPU) market has helped it grow rapidly.
From generating just $4 billion in revenue in fiscal 2012 when the use of graphics cards was limited to only a few applications such as personal computers (PCs) and mobile devices for gaming, Nvidia has come a long way. GPUs are now being deployed in huge volumes across a wide range of applications, including computers, consoles, data centers, workstations, and self-driving cars.
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This explains why Nvidia finished fiscal 2022 (which ended Jan. 30) with a record revenue of nearly $27 billion. The tech giant's impressive growth trajectory is set to continue, as analysts expect its top line to exceed $40 billion by fiscal 2024. That won't be surprising, as Nvidia is the dominant player in the discrete graphics card market that's built for robust long-term growth.
But investors who have missed Nvidia stock's hot, market-beating rally over the past decade need not be disappointed. That's because Micron Technology (MU -0.60%) could turn out to be the next big semiconductor play and replicate Nvidia-like gains. Let's see why that may be the case.
Micron Technology is benefiting from the growing application of memory chips
Micron Technology provides memory chips that are used for computing and storage in different applications such as PCs, mobile computing devices, data centers, gaming consoles, factories, cars, and many others. Just like Nvidia, even Micron's market was limited to applications such as computers and mobile phones a decade ago, and devices used to consume a lot less memory than they do now.
For some perspective, Micron had generated $8.2 billion in revenue in fiscal 2012, while its loss stood at $1.04 per share thanks to the cyclical nature of the memory market. The chipmaker has been historically affected by booms and busts in memory prices in the past, with its revenue and margins nosediving whenever the memory industry was faced with an oversupply or weak demand.
However, it appears that the memory industry is not impacted by cyclicity anymore, thanks to the spurt in applications of DRAM (dynamic random access memory) and NAND flash memory. This is evident from Micron's terrific growth in the ongoing fiscal year, despite concerns on Wall Street last year that memory prices are set to tumble.
The company has generated $15.5 billion in revenue for the first six months of fiscal 2022, up 29% over the prior-year period. Analysts expect Micron to finish the fiscal year with nearly $34 billion in revenue while anticipating that its fiscal 2023 revenue would cross $40 billion. For comparison, Micron generated just $8.2 billion in revenue in fiscal 2022 when the size of its addressable market was smaller.
So just like Nvidia, Micron has also won big from the growing application of the chips that it sells. In fact, both companies are anticipated to generate identical revenue in a couple of years, as the discussion above indicates.
Micron is trying to increase its market share
Nvidia's dominant position in the graphics card market has been the driving force behind the company's outstanding growth over the years. According to Jon Peddie Research, Nvidia controlled 81% of the discrete GPU market in the fourth quarter of 2021. The company is also the leading provider of data center graphics cards, with market research firm Omdia estimating that it controlled over 80% of this booming space in 2020.
Micron, on the other hand, isn't the largest player in the memory industry. The company controlled 23.5% of the DRAM memory market in 2020, trailing Samsung and SK Hynix, which controlled 41.7% and 29.4% of this market, respectively. However, Micron has been trying to take share away from its rivals on the back of its product development moves, and the good part is that its moves are bearing fruit.
As it turns out, Micron reportedly makes the most advanced DRAM node at present as compared to its rivals. And now, the company is on track to begin the production of DRAM chips based on the extreme ultraviolet (EUV) lithography process from 2024 -- a move that's expected to help it maintain a technology lead over rivals.
All this indicates that Micron may be on its way to capturing a bigger share of the massive DRAM market that clocked an estimated $92.5 billion in revenue last year. What's more, global DRAM revenue is expected to exceed $200 billion by 2028, which should help Micron sustain its robust growth in the long run.
Why Micron could become the next Nvidia
Micron is a bigger company than Nvidia in terms of revenue. The memory specialist has generated just over $31 billion in revenue over the trailing 12 months, greater than Nvidia's $26.9 billion. However, Nvidia's expensive valuation means that it is a much bigger company than Micron in terms of market capitalization.
Nvidia has a market capitalization of $505 billion as compared to Micron's $79 billion. However, Nvidia trades at a rich 52 times earnings as compared to Micron's trailing earnings multiple of 9. Micron's sales multiple of 2.65 is also much lower than Nvidia's multiple of nearly 21. This explains why Nvidia's valuation eclipses that of Micron by a huge margin.
However, analysts estimate both Micron and Nvidia will clock identical annual earnings growth of 30% for the next five years. So it won't be surprising to see Micron trade at a more expensive valuation in the future since it looks well placed to keep growing its earnings and revenue at a nice pace.
All this indicates that Micron Technology has the potential to become the next Nvidia. The memory specialist is generating solid revenue and earnings growth and working to increase its market share, and it operates in an industry that's built for growth in the long run. That's why investors looking to buy a growth stock at a cheap valuation may consider buying Micron right now before it becomes more expensive like Nvidia.
