Nvidia (NVDA 1.21%) stock has popped 223% over the past year, catapulting the company to a $2.1 trillion valuation (only Apple and Microsoft are worth more). Nvidia makes powerful graphics processing chips (GPUs) for the data center that are designed to handle artificial intelligence (AI) workloads, and the company is overwhelmed with demand.
But while investors are (understandably) laser-focused on Nvidia, they might be overlooking other opportunities in the chip sector. According to The Wall Street Journal, analysts have a consensus overweight (bullish) rating on two other names: Micron Technology (MU 0.66%) and Axcelis Technologies (ACLS 0.93%).
Here's why following Wall Street's lead and buying shares of Micron and Axcelis might be an excellent idea.
1. Micron Technology is a critical partner to Nvidia
Micron is one of the world's largest producers of memory (DRAM) and storage (NAND) chips, which are critical in everything from smartphones to data centers. As a result, the company's opportunity in the expanding AI space is already proving to be multifaceted.
First, Micron's latest HBM3E (high-bandwidth memory) solution was chosen by Nvidia to power its new H200 data center GPU, which is the successor to its industry-leading H100. Micron's HBM3E memory consumes 30% less power than competing hardware, which makes it an obvious choice as data center operators seek to keep costs down. Unsurprisingly, Micron's high-bandwidth memory is completely sold out for 2024, and most of its 2025 supply has been allocated already.
Second, AI workloads are quickly migrating from the data center to computers and devices instead, which creates a faster and more intuitive user experience. The chipsets inside AI-enabled computers are called neural processing units (NPUs), and they require 80% more DRAM capacity than traditional chips. Similarly, Micron expects DRAM content inside mobile devices to double. That translates to more demand and more revenue for the company.
Micron's chips can already be found in Samsung's latest Galaxy S24 smartphone, which it also advertises as "Galaxy AI." It features a chat assistant, translation assistant, and new camera technologies, all powered by AI.
Micron stock is already up 47% in 2024 and is trading near an all-time high. Investors were very pleased with its breakout fiscal 2024 second quarter (ended Feb. 29). For Q2, it delivered $5.8 billion in revenue, a 57% year-over-year jump. The company appears to have fully recovered from a challenging landscape last year, when it grappled with an oversupply of chips.
The Wall Street Journal tracks 38 analysts covering Micron stock, and 27 have given it the highest possible buy rating. The company is forecasting an accelerated revenue growth rate of 76% in the upcoming fiscal 2024 third quarter (ending June 1), so there could be more upside ahead for the shares.
2. Axcelis is one of the cheapest stocks in the chip space
Axcelis Technologies is often overlooked by investors because it doesn't actually produce any chips. Instead, it makes ion implantation equipment that is critical to the fabrication process. The Wall Street Journal tracks just eight analysts covering Axcelis stock, but the majority of them have given it the highest possible buy rating. It trades at a very attractive valuation right now, so investors might want to follow the Street's lead.
The electric vehicle (EV) industry is a significant source of demand for Axcelis, because it's the only ion implant company with complete coverage for power device applications. Power devices regulate electric power in workloads with high currents, and chemistries like silicon carbide can help manufacturers deliver hardware that is far more efficient. In EV applications, that leads to shorter charging times and much further battery range (mileage).
Axcelis expects AI to become an increasingly important source of demand, too. As I touched on in the section about Micron, AI requires significantly more memory and storage capacity than traditional computing workloads, and that means more complex manufacturing processes and more expensive chips.
Axcelis generated $1.13 billion in revenue in 2023, which was a 22.9% increase from 2022. Its earnings per share (profit) jumped by an even more impressive 36.1% to $7.43. But it gets better, because the company is currently sitting on an order backlog worth a whopping $1.2 billion, so 2024 could be another strong year.
Axcelis stock is up 390% over the past five years, even after accounting for the recent 46% pullback from its all-time high. Based on the company's 2023 earnings and its current stock price of $104.32, it trades at a price-to-earnings (P/E) ratio of just 14. That's a 56% discount to the iShares Semiconductor ETF, which sports a P/E ratio of 32.3, implying Axcelis is far cheaper than its peers in the chip industry as a whole.
Based on Wall Street's consensus price target of $156, Axcelis stock could soar 50% from where it trades today. However, it would have to more than double just to trade in line with the iShares Semiconductor ETF. Either way investors look at it, there is a very clear case for potential upside.
