April 20, 2024

Did Nvidia miss out? 2 Incredibly Cheap Artificial Intelligence (AI) Stocks to Buy Before They Jump from 47% to 95%

The hype over artificial intelligence (AI) has skyrocketed NVIDIA actions in the last year; The company’s chips have seen massive demand thanks to their ability to train large and complex AI models.

Strong demand for Nvidia’s chips explains why the company’s revenue will more than double in its current fiscal year, which ends this month. The market has generously rewarded Nvidia for its spectacular growth: its shares are up 222% last year. The good thing is that Nvidia seems able to maintain its impressive rally thanks to growing demand for AI chips deployed in servers and other applications.

This explains why KeyBanc Capital markets analyst John Vinh recently raised his price target on Nvidia from $650 to $740. The upgraded price target points towards a 30% upside from current levels. However, Nvidia wasn’t the only chip stock to receive a price target increase from KeyBanc. The company expects two more chip makers, Advanced Micro Devices (AMD. 5.97%) and Micron technology (MU 0.06%) benefit from the adoption of AI.

Let’s look at the reasons why KeyBanc has upgraded these semiconductor stocks, which look like obvious buys right now.

1. Advanced microdevices

Vinh has increased his price target on AMD from $170 to $195, pointing to gains of 19% from current levels. The analyst noted that recent supply chain checks found that demand for AMD’s server processors and recently launched AI-focused accelerators was strong. According to Vinh, AMD’s MI300 family of AI accelerators could generate $8 billion in revenue in 2024, a significant jump from the previous estimate of $3 billion to $4 billion.

It’s not hard to see why KeyBanc has substantially increased its sales estimate for AMD AI chips this year. The chipmaker has been aggressively looking to bolster its supply chain in order to make a dent in the AI ​​chip market. The founding partner of AMD, Semiconductor manufacturing in TaiwanTSMC, popularly known as TSMC, is expected to increase its advanced chip packaging capacity by 20% in 2024, up to 35,000 wafers per month.

That would be much higher than previous estimates, which put TSMC’s monthly advanced chip packaging capacity for 2024 in a range of 14,000 to 16,000 wafers. As a result, AMD should be able to ship a much larger number of AI chips in 2024, considering it is among TSMC’s largest customers. Assuming AMD manages to reach $8 billion in revenue from AI chip sales, it would easily surpass its current expectation of generating just $2 billion in sales in this market.

Ultimately, this could help AMD achieve stronger-than-expected growth in 2024. Analysts currently anticipate AMD’s revenue to rise nearly 18% this year to $26.7 billion, followed by a 16% increase in 2025.

AMD Revenue Estimates for Current Fiscal Year Chart

AMD revenue estimates for current fiscal year data according to YCharts

However, as the chart above shows, analysts have substantially raised their revenue growth expectations for AMD. KeyBanc’s latest supply chain checks suggest those estimates could rise as the year progresses and AMD earns more revenue from selling AI chips.

For example, if AMD can actually make $8 billion in revenue from AI chip sales in 2024, compared to its original estimate of $2 billion, that extra $6 billion in revenue could help it achieve nearly $33 billion in revenue this year. Based on AMD’s current price-to-sales ratio of 11.7, a top line of $33 billion could send its market cap to $386 billion within a year.

That would be a 47% jump from current levels, although don’t be surprised if AMD stock offers more upside as the market could reward it with a higher sales multiple. Nvidia, for example, has a price-to-sales ratio of over 31. Therefore, AMD is significantly cheaper right now. But that may not be the case for long, considering the improved prospects for its AI business.

2. Micron technology

KeyBanc increased its price target for Micron Technology shares to $115 from $100, which would be an impressive 35% jump from the current price. The reason behind this price target upgrade is the lucrative opportunity for Micron in the high-bandwidth memory (HBM) chip market.

Demand for HBM is increasing rapidly as it is deployed on AI servers, which are rapidly being deployed to train large language models (LLMs). According to Foxconn, the AI ​​server market could grow fivefold by 2027, which should also positively affect HBM demand. market research company Gartner predicts that demand for HBM could increase eight-fold in the next four years due to its ability to provide high data bandwidth, increased capacity and reduce power consumption at the same time, three factors that play a critical role in LLM training.

KeyBanc supply chain checks have revealed that Micron is ready to ride the HBM wave with the help of Nvidia. The memory specialist is expected to control 70% of HBM’s stake in Nvidia’s upcoming B100 data center graphics processing units (GPUs). Nvidia’s B100 GPU is expected to be manufactured using a more advanced 3 nanometer (nm) process compared to the 5 nm process that the H100 is based on.

Nvidia’s new chip is expected to be significantly more powerful. A smaller process node means that chips made on it should ideally carry more computing power and reduce power consumption. So, it won’t be surprising to see this AI chip witness strong customer demand, and that could eventually help Micron ship more units of its HBM.

Additionally, Micron confirmed in its December earnings call that its HBM was in the final stages of qualifying for multiple Nvidia AI chips. All of this explains why the company’s top-line growth will take off starting in the current fiscal year, jumping to $22.6 billion from just $15.5 billion in fiscal 2023.

MU Revenue Estimates for Current Fiscal Year Chart

MU Revenue Estimates for Current Fiscal Year Data by YCharts

Additionally, as the chart above indicates, Micron’s revenue estimates have been rising lately and the trend could continue as AI-driven memory adoption increases.

With Micron shares currently trading at 5.7 times sales, which is in line with its five-year average sales multiple, investors are getting a good deal on the stock considering the potential growth it is expected to generate. . Assuming a similar multiple after two years and $32 billion in revenue, as the chart above indicates, Micron’s market cap could reach $182 billion.

That would be 95% higher than its current market cap. Therefore, investors should not miss the opportunity to buy Micron while it is trading at a significantly cheaper valuation than Nvidia, as it could generate huge upside thanks to AI.

Leave a Reply

Your email address will not be published. Required fields are marked *