Both companies are enjoying spectacular AI sales boosts.
Many tech stocks benefited from the emergence of artificial intelligence (AI) into the mainstream. A prime example is semiconductor chipmaker Advanced Micro Devices (AMD 1.21%).
AMD shares skyrocketed from a 52-week low of $93.12 last year to a high of $227.30 in March. But it’s far from the only AI beneficiary.
Another company particularly well suited to capitalize on the AI market is Micron Technology (MU 1.82%). Its stock also exploded over the past year, rising from a 52-week low of $61.75 last August to a high of $157.54 in June.
Both AMD and Micron possess compelling reasons to invest in their stocks. But if you could only pick one, which would be the better AI investment? Here’s a look at each to help you arrive at an answer.
AMD’s pros and cons
AMD builds semiconductor chips that provide the processing power required by an AI system to execute complex computations. So with the advent of AI, AMD saw a spectacular spike in demand for its products.
For example, the company’s data center division, which includes AI chips for cloud computing, witnessed an astounding 80% year-over-year surge in first-quarter revenue to $2.3 billion. Its AI products for PCs, grouped under its client division, saw sales soar 85% to $1.4 billion. Combined, these two business segments comprised nearly 70% of AMD’s $5.5 billion in Q1 revenue.
However, despite the success of its AI chips, AMD’s other lines of business delivered dour results in Q1. Its gaming division’s revenue was down 48%, and sales to the industrial sector, such as chips for automobiles, declined 46%.
According to AMD management, customer demand for its products in these areas has been weak this year. In fact, management expects gaming sales to drop further in the second half of 2024.
The drop in these parts of its business are a result of the cyclical nature of the semiconductor industry. For instance, AMD’s client division delivered $739 million in Q1 revenue last year, but nearly doubled that amount in 2024. And AMD management believes its industrial sales will gradually recover in the second half of this year.
Combining the revenue growth in some of AMD’s divisions and the decline in others, the company forecasts second-quarter sales to come in around $5.7 billion, which is a modest 6% increase from the previous year’s $5.4 billion.
A look at Micron
Micron provides computer memory and storage components. These are required by AI systems to store and retrieve the data needed to perform tasks.
This means Micron’s business is on fire. Customer demand is so strong, the company already sold out of its AI-tailored high-bandwidth memory chips for 2024, and raised prices.
The price increases led to growth in the company’s gross margin, which hit 27% in its fiscal third quarter, ended May 30. This is up from Q2’s 19%, and it doesn’t end there. Micron expects its gross margin to go up again in Q4 to around 34%.
The AI-fueled demand for Micron’s products led to 82% year-over-year revenue growth to $6.8 billion in Q3. The company expects its strong sales to continue into its fiscal fourth quarter, reaching around $7.6 billion. That’s a 90% increase over the prior year’s $4 billion.
While Micron is seeing outsize success in 2024, like AMD, it’s also subject to cyclical ups and downs. For example, the company exited its 2023 fiscal year, ended Aug. 31, with $15.5 billion in sales, a drop of nearly 50% compared to fiscal 2022, due to a downturn in the memory and storage industry.
The industry slowly recovered over the last few quarters thanks to AI. This allowed Micron to bounce back from a $1.2 billion net loss in Q1 to net income of $332 million in Q3.
Making a decision between AMD and Micron
Both AMD and Micron are benefiting from the AI boom, making it a challenge to assess which is the better AI investment. The current consensus among Wall Street analysts is a “buy” rating for both AMD and Micron stocks.
One factor to consider is valuation. Micron’s massive Q1 loss means, through nine months, it remains at a net loss of $109 million, so the price-to-earnings (P/E) ratio commonly used for stock valuation isn’t applicable. Instead, let’s compare each stock’s price-to-sales (P/S) ratio.
Data by YCharts.
AMD’s P/S ratio is about double Micron’s, which suggests Micron stock is the better value.
Taking this into consideration combined with Micron’s strong year-over-year sales growth versus AMD’s mixed demand across its business units, which offsets the boost from its AI sales, Micron edges out AMD as the better investment between these two AI-fueled stocks.