Assessing the Best Buys in AI Technology
The semiconductor industry, particularly the segments producing chips for AI applications, has become a battleground for investors seeking to capitalize on the next wave of technological innovation. As the AI market is projected to reach a staggering $909 billion by 2030, companies in this space are drawing significant attention for their growth potential. Baird’s 5-star analyst Tristan Gerra recently reviewed two major contenders, Intel (NASDAQ:INTC) and Micron (NASDAQ:MU), offering investors guidance on which stock might offer the best investment opportunity.
Intel, a stalwart in the semiconductor industry, continues to dominate the PC processor market, commanding a 63% share. The company reported a robust $54.22 billion in revenue last year, cementing its status among the top four global chipmakers. Intel is not resting on its laurels, however. It’s aggressively pursuing advancements in AI chip technology and leveraging the Federal CHIPS Act to secure $8.5 billion in funding, with eligibility for an additional $11 billion in loans. This financial infusion supports Intel’s new foundry project in New Mexico, which is poised to begin production of cutting-edge 18A fabrication technology CPUs by 2025. Despite these initiatives, Baird’s Gerra urges caution, noting potential growth limitations in the x86 market and increasing competition from ARM architectures.
On the other hand, Micron, known for its high-quality memory chips, continues to innovate in sectors demanding intensive data storage, such as AI and data centers. With a history dating back to 1978, Micron’s technological prowess is evident in its diverse applications, from 5G networks to autonomous vehicles. The company posted $18.3 billion in revenue in 2023 and recently announced a significant $6.1 billion funding arrangement under the CHIPS Act. This will bolster its capex plans, potentially amounting to $50 billion through 2030. Micron’s recent achievements include shipping 128GB DDR5 32Gb server DRAM chips, essential for AI computing, indicating strong future prospects.
Comparatively, Micron’s recent earnings report outshone expectations with a $5.82 billion revenue in fiscal 2Q24, marking a 57% year-over-year increase. The company also forecasts a promising $6.4 billion to $6.6 billion revenue range for the next quarter. Gerra is optimistic about Micron, noting the positive trends in DRAM pricing and potential high margins from newer technologies like HBM3E. He assigns Micron an Outperform rating with a $150 price target, suggesting a 26% upside potential.
In summary, while Intel remains a formidable player in the semiconductor space, its growth may be tempered by market saturation and competitive pressures. Micron, however, appears to be on an upward trajectory, with substantial investments and technological advancements that could lead to significant returns. Investors looking for robust growth opportunities in the semiconductor sector may find Micron’s prospects particularly compelling, making it the preferred stock to buy according to Baird’s analysis.
