It has been an incredible few years for chip company Nvidia, which recently became the first business in history to hit a $4trn market capitalisation. But while the US chip firm’s price-to-earnings (P/E) ratio of 53 is too high for my tastes, US rival chipmaker Micron Technology (NASDAQ:MU) is trading on a more modest P/E ratio of 22. Micron stock has gone up by 140% in five years.
Lately it has soared, moving up by 83% since the start of April. So could this be a chip stock to consider for my portfolio as the artificial intelligence (AI) boom continues?
Not exactly Nvidia
Micron has been around for decades already and as well as manufacturing internationally, it has some US production sites. That helps set it apart from other semiconductor makers at a time when global tariff disputes have raised some of the risks involved with complex international supply chains.
That said, Micron is selling internationally and also manufacturing globally, so its US factory footprint is not a panacea for all the risks associated with trade disputes.
The AI boom has been the sort of tide that can lift all boats. It looks set to offer Micron some benefits in terms of sales in coming years. Last month, while setting out a bullish outlook for the remainder of the year, the company’s management specifically pointed to AI-related demand as a driver for that.
However, revenues last year were just 7% higher than five years previously. During that period, Nvidia revenues surged 1,195%.
Due to factors including its product mix, Micron also has far less attractive profit margins than Nvidia. Last year, Nvidia’s net profit margin was 56%. By contrast – stark contrast – Micron’s was just 3%.
That is not quite wafer thin, but it is thinner than I would hope for with a successful tech company that has an installed user base, scaleable business model and long experience.
My take on Micron
So is this a share for me to buy now? On one hand, Micron does have quite a bit going for it. It ought to benefit from higher customer demand due to AI installations, as well as ongoing long-term demand from a product range it has developed over decades.
It has been scaling up its high bandwidth memory proposition to try and ride this wave, something that could boost both revenues and profits. That was a key factor in its most recent quarterly results, which at $9.3bn of revenue was a record result.
If this is just the start of things ramping up, we may see the sort of surge in revenues Nvidia has managed over recent years. I think that could boost Micron stock exponentially, even after its recent rise.
That said, I do not see Micron as the next Nvidia — it has a less streamlined business model that has not produced anything like the sales and profit growth achieved by its rival.
It may not be as costly as Nvidia but it is not exactly cheap either. It is a low-margin business with a history of inconsistent financial performance. In a crowded space, it remains to be seen how effectively it can capitalise on AI-fuelled demand over the long term.
I am paying close attention to Micron’s business performance and its stock price but, for now, I am not ready to invest.
