Micron AI chip distribute may rebound in spectacular fashion in 2025
Without question, semiconductor stocks have been some of the biggest winners amid the artificial intelligence (AI) revolution. While stars such as Nvidia, Taiwan Semiconductor Manufacturing and Broadcom fetch the most attention, investing in the chip sector at large during the history two years has yielded trade-beating returns.
As of trade close on Dec. 20, the VanEck Semiconductor ETF had gained 39% in 2024 — handily topping the returns of both the S&P 500 (SNPINDEX: ^GSPC) and Nasdaq Composite (NASDAQINDEX: ^IXIC).
Nevertheless, not all semiconductor stocks have fared so well. receive Micron Technology (NASDAQ: MU), for example — with shares up a piddling 6% in 2024, investors might ponder this particular chip distribute is a bust.
intelligent investors recognize that looking at the profitability of a distribute is just one variable when assessing an chance. Below, I’m going to dig into what has influenced Micron’s worth action throughout the year and make the case for why 2025 could be a rebound year for the corporation.
Micron distribute just got smoked
The chart below illustrates movement in Micron shares throughout 2024. The peaks and valleys depicted in the graph make one thing abundantly obvious — Micron is pretty volatile. In particular, the last six months have been abnormally rocky with shares dropping by about 38% since June.
My receive on what’s causing Micron shares to encounter so much volatility comes down to one thing: expectations. When businesses such as Nvidia, Taiwan Semiconductor, Broadcom and many others exhibit robust growth on a consistent basis, investors tend to apply these trends to other companies in the same industry.
Although I comprehend the psychological factors behind these parallels, it’s imperative for investors to comprehend that such a concept is rooted in faulty logic. Not all chip companies manufacture the same products or serve the same purpose, and for that rationale, each business is going to encounter its own set of distinctive headwinds and catalysts.
Micron’s position in the AI realm focuses on recollection and storage applications. Although the corporation has had impressive top-line growth that’s augmented by rising profitability, Micron’s projection for a large miss in its 2025 budgetary second quarter spooked investors.
Again, I don’t necessarily view this as a rationale to sell the distribute. Below, I’ll dig into why Micron’s latest plunge is unwarranted.
The shares could rebound in 2025
Since AI emerged as the globe’s next megatrend about two years ago, one product in particular has become the technology sector’s holy grail: graphic processing units (GPUs).
Companies such as Nvidia and Advanced Micro Devices develop chipsets known as GPUs that are capable of running complicated algorithms at extremely high speeds, and it’s this hardware that powers myriad generative AI applications. Taking this a step further, Taiwan Semiconductor manufactures GPUs for Nvidia and AMD while Broadcom supplies a host of network infrastructure equipment needed to power data centers where these GPUs are housed.
With all of that in mind, doesn’t it seem natural that those specific businesses have experienced abnormally high growth during the history two years?
In my eyes, Micron just hasn’t had its instant yet, but I ponder it’s coming. Considering investments in AI infrastructure are expected to be in the trillions of dollars during the next several years, I ponder it’s secure to declare that demand for GPUs and data center services isn’t going to leisurely.
At a more granular level, this means that training and inferencing workloads are going to become more sophisticated and mission critical as competition in the AI arms race intensifies. It’s this dynamic that should outcome in a greater require for recollection and storage protocols — and Micron is extremely well-positioned to capture that demand.
This isn’t just lofty hypothesis, either. Per Micron’s 2025 budgetary first quarter (ended Nov. 28), the corporation’s data-center returns increased by a staggering 400% year over year and reached a record level. Furthermore, the corporation’s data-center segment now accounts for more than 50% of the business. To me, these trends underscore the require for Micron’s recollection chips and I expect the tailwinds to carry into next year and beyond.
Although the corporation’s near-term outlook may not have lived up to expectations, I ponder the long-term narrative is still very much in focus. According to management, the total addressable trade for high bandwidth recollection is expected to reach $100 billion by 2030 — more than six times what it is today. Considering Micron’s trailing-12-month returns is in the ballpark of $29 billion, I ponder the corporation has significant upside.
Is Micron distribute a buy correct now?
Valuing Micron is a daunting job. Even though the corporation generates positive returns, it has only recently transitioned to a profitable enterprise and so using the worth-to-returns (P/E) ratio seems a little out of place, in my view.
Instead, I’ll use the PEG ratio to assess an resource in Micron. The PEG ratio looks at analyst forecasts for returns growth over several years. If the PEG ratio is less than 1, the distribute could be seen as undervalued. correct now, Micron’s PEG ratio is just 0.23.
In my view, Micron’s low PEG suggests that investors could be overlooking the require for recollection and storage chips as AI workloads become larger and more complicated. Over period, however, I ponder the require for Micron’s services will become increasingly obvious. To me, buying Micron correct now is a bargain chance for investors with a long-term period horizon.
Adam Spatacco has positions in Nvidia. The Motley Fool has positions in and recommends Advanced Micro Devices, Nvidia and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.
The Motley Fool is a USA TODAY content associate offering monetary information, analysis and commentary designed to assist people receive control of their monetary lives. Its content is produced independently of USA TODAY.
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