Should You Forget Nvidia and Buy These 2 Tech Stocks Instead?
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Should You Forget Nvidia and Buy These 2 Tech Stocks Instead?
October 11, 2024 — 03:30 am EDT
Written by
Harsh Chauhan for
The Motley Fool->
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Nvidia (NASDAQ: NVDA) seems well on its way to end another year with stunning gains. Shares of the semiconductor giant have shot up more than 150% so far in 2024 after a stellar performance last year, and there is a good chance that it can continue to fly higher.
After all, Nvidia management points out that the demand for its artificial intelligence (AI) chips continues to remain solid, with its upcoming Blackwell processors experiencing stronger demand than supply going into 2025. So, it won't be surprising to see Nvidia delivering phenomenal growth in revenue and earnings next year as well, and that could lead to more stock market upside.
However, certain investors may be looking for alternatives to capitalize on the AI boom because of Nvidia's valuation. The stock's earnings multiple of 59 is well ahead of the Nasdaq-100 index's earnings multiple of 32. Though Nvidia's healthy revenue and earnings growth can help justify its valuation, investors with a lower risk appetite may want to look at cheaper options.
Here are two names that look like ideal alternatives to Nvidia stock.
1. Micron Technology
Micron Technology (NASDAQ: MU) is a manufacturer of memory chips and counts the likes of Nvidia among its customers. As the demand for Nvidia's AI graphics processing units (GPUs) has boomed, Micron has also witnessed robust growth in sales of its high-bandwidth memory (HBM) chips that are used in these GPUs.
This is the reason why Micron Technology's revenue for the fourth quarter of fiscal 2024 (which ended Aug. 29) increased a whopping 93% year over year to $7.75 billion. The chipmaker also posted a non-GAAP (adjusted) profit of $1.18 per share as compared to a loss of $1.07 per share in the same quarter last year.
More importantly, Micron expects revenue of $8.7 billion for the current quarter, which would be a jump of 84% from the same period last year. For comparison, Nvidia expects 80% year-over-year revenue growth in the current quarter. Of course, Nvidia has a much larger revenue base than Micron, as its revenue in the previous quarter shot up 122% year over year to $30 billion, but investors should note that they can buy Micron at a much cheaper valuation.
This is evident in the chart below:
NVDA PS Ratio data by YCharts
Additionally, Micron's AI-related opportunity is more than just memory used in data centers. The company is also on track to benefit from the increasing integration of generative AI features in smartphones and personal computers. On its latestearnings conference call Micron management pointed out that AI-enabled smartphones are carrying 12 gigabytes (GB) to 16GB of dynamic random access memory (DRAM) as compared to the 8GB DRAM available in flagship smartphones last year.
On the most recentearnings call Micron CEO Sanjay Mehrotra cited a similar development in the PC market: "As an example, leading PC [original equipment manufacturers] have recently announced AI-enabled PCs with a minimum of 16GB of DRAM for the value segment and between 32GB to 64GB for the mid and premium segments, versus an average content across all PCs of around 12GB last year."
It is worth noting that both of these markets are on track to witness huge growth in shipments because of generative AI. In smartphones, generative AI-enabled devices are expected to clock an annual growth rate of 78% through 2028, according to IDC. Meanwhile, shipments of AI PCs are forecast to grow at an annual pace of 44% between 2024 and 2028, according to Canalys.
And finally, Micron estimates that the size of the HBM market could jump from $4 billion in 2023 to $25 billion in 2025. In all, Micron has multiple lucrative growth drivers thanks to AI, which explains why its bottom line is forecast to take off remarkably from fiscal 2024's reading of $1.30 per share over the next couple of years.
MU EPS Estimates for Current Fiscal Year data by YCharts
As such, Micron looks like a solid bet for investors looking to make the most of the growth in the AI semiconductor market but are wary of buying Nvidia right now because of its expensive valuation.
2. Taiwan Semiconductor Manufacturing
Taiwan Semiconductor Manufacturing (NYSE: TSM), popularly known as TSMC, is the world's largest foundry that manufactures chips for major chipmakers and consumer electronics companies, including Nvidia. In fact, TSMC has played a central role in Nvidia's success in the AI chip market thanks to TSMC's advanced process nodes that have allowed it to produce fast and