There’s no doubt that semiconductor stocks have been some of the biggest winners amid the AI revolution. While stars like Nvidia, Taiwan Semiconductor Manufacturing Co., Ltdand Broadcom It has attracted the most attention, as investing in the chip sector in general over the past two years has delivered market-beating returns.
As of market close on December 20,… Van Eck Semiconductor Corporation It gained 39% in 2024 – easily surpassing the returns of both Standard & Poor’s 500(SNPINDEX: ^GSPC)and Nasdaq Composite(NASDAQ: ^IXIC).
However, not all semiconductor stocks performed well. takes Micron technology(NASDAQ: MU)For example – with the stock up 6% in 2024, investors might think that this particular chip stock is in bankruptcy.
Smart investors know that looking at EPS is just one variable when evaluating an opportunity. Below, I’ll dig into what influenced Micron’s price movement over the year and show why 2025 could be a rebound year for the company.
The chart below shows the movement of Micron stock throughout 2024. The peaks and valleys shown in the chart make one thing abundantly clear – Micron stock is very volatile. In particular, the past six months have been abnormally difficult with shares down about 38% since June.
My opinion on why Micron stock is experiencing so much volatility comes down to one thing: expectations. When companies like Nvidia, Taiwan Semiconductor, Broadcom, and many others show strong growth on a consistent basis, investors tend to apply these trends to other companies in the same industry.
Although I understand the psychology behind these similarities, it is essential for investors to understand that such an idea is rooted in faulty logic. Not all chip companies make the same products or serve the same purpose, and for this reason, each company will face its own set of unique headwinds and catalysts.
Again, I don’t necessarily see this as a reason to sell the stock. Below, I’ll look at why Micron’s recent plunge is inexcusable.
Since AI emerged as the world’s next huge trend nearly two years ago, one product in particular has become something of a holy grail for the tech sector: graphics processing units (GPUs).
Companies like Nvidia and Advanced micro devices Developing chips known as graphics processing units (GPUs) capable of running complex algorithms at extremely high speeds, it is these devices that power countless generative AI applications. Taking this a step further, Taiwan Semiconductor Corporation manufactures GPUs for Nvidia and AMD while Broadcom provides a range of network infrastructure equipment needed to run Data centers Where these GPUs are located.
Taking all that into consideration, doesn’t it seem natural that those specific companies have seen abnormally high growth over the past couple of years?
In my eyes, Micron hasn’t had his moment yet, but I think it’s coming. Given that investments in AI infrastructure are expected to reach trillions of dollars over the next few years, I think it’s safe to say that demand for GPUs and data center services will not slow down.
At a more granular level, this means that training and inference workloads will become more complex and more mission-critical as competition in the AI arms race intensifies. It is this dynamic that should lead to a greater need for memory and storage protocols – and Micron is very well positioned to capture this demand.
This isn’t just some lofty theory either. In Per Micron’s fiscal first quarter of 2025 (ending November 28), the company’s data center revenue increased a staggering 400% year-over-year and reached a record high. Furthermore, the company’s data center segment now represents more than 50% of the business. To me, these trends underscore the need for Micron memory chips and I expect these tailwinds to continue into next year and beyond.
Although the company’s near-term outlook may not have lived up to expectations, I believe the long-term narrative is still very much in focus. According to management, the total addressable market for high-bandwidth memory is expected to reach $100 billion by 2030 — more than six times what it is today. Considering Micron’s trailing 12-month revenue is in the range of $29 billion, I think the company has significant upside.
Image source: Getty Images.
Evaluating Micron is a daunting task. Although the company is generating positive earnings, it has recently transitioned into a profitable enterprise, so using the price-to-earnings (P/E) ratio seems a little misplaced, in my opinion.
Instead, I will use the PEG ratio to evaluate an investment in Micron. The PEG ratio looks at analysts’ expectations for earnings growth over several years. If the PEG ratio is less than 1, the stock could be considered undervalued. Currently, Micron’s PEG ratio is just 0.23.
In my opinion, Micron’s lower PEG suggests that investors may be ignoring the need for memory and storage chips as AI workloads become larger and more complex. However, over time, I believe the need for Micron’s services will become increasingly apparent. For me, buying Micron now is an opportunity for investors with a long-term time horizon.
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Adam Spatacco He has positions at 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 Disclosure policy.
