Nvidia (NVDA 0.48%) is now the third-largest company in the world behind Apple and Microsoft, thanks to a 200% pop in its stock price over the past year, which catapulted its market cap to $2.35 trillion.
Nvidia owes most of its recent success to its graphics processing units (GPUs) for use in data centers. These GPUs are designed to help developers build, train, and deploy artificial intelligence (AI) models. However the AI industry is rapidly expanding, and since many investors are laser-focused on Nvidia, they might be overlooking other exciting opportunities in the chip sector.
According to The Wall Street Journal, analysts have reached a bullish consensus on Advanced Micro Devices (AMD +1.64%) and Micron Technology (MU +4.80%), both of which play an increasingly important role in the AI industry. Here's why buying shares in these two semiconductor companies might be a great idea.
NASDAQ: AMD
Key Data Points
1. Advanced Micro Devices (AMD)
Nvidia's H100 GPU has been the go-to AI chip for data center operators, and demand has exploded over the past 18 months. It just started shipping the even more powerful H200 GPU, and customers are eagerly awaiting a new line of chips based on the company's latest Blackwell architecture that will launch closer to 2025. But demand continues to outstrip supply, which leaves the door open for competitors to take market share.
AMD is stepping in to do just that. It's now shipping its MI300 lineup of data center chips, which come in two configurations. The MI300X is a pure GPU like the H100, and the MI300A combines GPU and central processing unit (CPU) technologies to create an accelerated processing unit (APU). The latter was chosen by the Lawrence Livermore National Laboratory to power its new El Capitan supercomputer, which will advance everything from high-energy-density physics to U.S. national defense.
The MI300 series has already won over many of Nvidia's biggest commercial customers, including Microsoft, Oracle, and Meta Platforms. Demand is so strong that AMD now expects to sell $4 billion worth of MI300 GPUs in 2024 (that forecast stood at $2 billion just a few months ago).
But AI is quickly migrating out of the data center and onto our computers and devices, and this is a segment of the market AMD already dominates. Millions of PCs fitted with its Ryzen AI CPUs, GPUs, and neural processing units (NPUs) have already shipped, from top manufacturers like Dell and HP. By processing AI on a device, chatbots and other AI applications can answer queries more quickly, which leads to a better user experience.
Ryzen AI chips are already making a noteworthy financial contribution to AMD. In the first quarter of 2024 (ended March 31), they drove AMD's client segment revenue to nearly $1.4 billion, an 85% year-over-year increase.
The company views AI as the biggest inflection point for PCs since the dawn of the internet, which makes AMD stock a great long-term addition to any portfolio as the revolution unfolds.
The Wall Street Journal tracks 48 analysts covering AMD stock, and 33 have given it the highest possible buy rating. A further six are in the overweight (bullish) camp, and nine recommend holding. Not one of them recommends selling. Based on some of the points highlighted above, the overwhelmingly bullish consensus isn't surprising.
NASDAQ: MU
Key Data Points
2. Micron Technology
Micron doesn't produce CPUs or GPUs like AMD and Nvidia. Instead, it makes some of the industry's most sought-after memory (DRAM) and storage (NAND) chips, which are increasingly important because AI applications command more of both.
In fact, Nvidia chose Micron's HBM3E (high-bandwidth memory) to power its new H200 GPU.
Micron's HBM3E consumes 30% less power than competing hardware, a key consideration for data center operators. First, it keeps electricity costs down, and second, some experts believe existing U.S. power infrastructure won't be able to cope with growing demand from data centers over the next couple of years, so trimming consumption is becoming a necessity.
As a result, Micron says its high-bandwidth memory is completely sold out for 2024 already, and most of its 2025 supply is also spoken for.
Like AMD, Micron benefits from AI's transition into personal computers and smartphones. CEO Sanjay Mehrotra says the chipsets inside AI-enabled computers require up to 80% more DRAM capacity than those in traditional PCs, and up to double the DRAM in mobile devices. Micron's chips are already powering the new Samsung S24 (Galaxy AI) smartphone, which comes with a number of AI features including a chat assistant, new camera tools, and innovative translation software that allows two people to converse in different languages.
The trend toward AI will lead to more complex and expensive chips, which is a tailwind for Micron's revenue. Speaking of which, the company generated $5.8 billion in revenue during the fiscal 2024 second quarter (ended Feb. 29), a 57% increase compared to the year-ago period. Its guidance for the upcoming third quarter (ending June 1) implies accelerated growth of 76%.
Micron stock is up 52% already this year, and it's trading at an all-time high, but 28 of the 39 analysts tracked by The Wall Street Journal still rate it as a buy. Simply put, investors who think companies like Nvidia and AMD will sell copious amounts of CPUs and GPUs thanks to AI should also be bullish on Micron's prospects. Therefore, now might be a great time to follow Wall Street's lead and buy this stock.
