Better Buy: AMD vs. Micron Technology

Promotions Advanced microdevices 09.30 NASDAQ: AMD and Micron technology 09.30 NASDAQ: MU so far in 2022 the stock market has received various riches.

Despite the fact that Micron Technology has maintained its position, despite the widespread sale of technology shares, AMD has suffered greatly. Surprisingly, investor confidence in AMD shares has not improved, despite the fact that the company on February 1 published solid results for the fourth quarter of 2021, which exceeded Wall Street expectations.

Micron, on the other hand, has begun to win investor confidence as it has become clear that demand for memory chips will be strong enough to maintain reliable prices.

^ NDXT data by YCharts

Does this mean that AMD shares will continue to lag behind Micron Technology shares in 2022, which will make the latter a better purchase given its rapid growth and valuation? Will AMD eventually regain its power and surpass Micron shares as it did in 2021? Let’s find out.

Right for AMD

Investors sold AMD shares this year due to factors spiraling out of the company’s control. The Federal Reserve is expected to raise interest rates seven times this year Goldman Sachs. The investment bank originally expected the Fed to raise rates five times this year, but now it sees two additional increases to control inflation.

This does not bode well for stocks such as AMD, whose rapid growth may be hampered by rising borrowing costs due to higher interest rates. As a result, investors seem to be in a state of panic and have sold AMD shares in 2022, choosing safer options such as Treasury bonds where they can earn higher returns in light of the Fed’s hawkish policy.

A man with glasses holds a smartphone in his hand.

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However, investors should not forget that AMD chips are used in several fast-growing end markets, which should help the company maintain outstanding growth in the long run. The data center market, for example, is one of AMD’s fastest growing markets, thanks to the tremendous demand for server processors and GPUs.

CEO Lisa Soo said at a conference call on the company’s earnings in February that AMD’s data center revenue had more than doubled in 2021. According to Soo, data center chip sales were “mid-20 percent” of AMD’s annual revenue last year, and she believes 2022 could be another year of significant growth for data center businesses.

This is not surprising, as the demand for AMD’s Instinct data center accelerators is growing to support high-performance computing (HPC). More importantly, demand for data center accelerators is expected to grow annually by 43.8% by 2027 to $ 53 billion, according to third-party estimates, which is good for AMD given its growing influence in the space.

Adoption of AMD data center processors has increased dramatically in recent times. In November 2021, the number of supercomputers running on EPYC server processors tripled compared to last year, and now the company’s chips run on eight of the world’s 10 most efficient supercomputers.

On the other hand, AMD’s growing share of the client processor market and the huge potential in the gaming console market will be additional catalysts for the company. All this explains why AMD is looking to achieve revenue growth of 31% this year, while analysts predict a 43% jump in profits due to improved margins. Such impressive growth could help AMD postpone disappointment earlier in the year and boost stocks.

Enclosure for Micron

Cheap Micron Technology valuations, fast-growing revenues and profits, and bright long-term prospects have helped the stock overcome wide sales in the market this year. The company’s revenue grew 33% year-over-year to $ 7.69 billion in the first quarter of fiscal year 2022, which ended Dec. 2, 2021, along with earnings per share growth of 177% to $ 2.16.

Analysts expect that this fiscal year Micron will reach 16% of total growth, and in 2023 fiscal year – by 20%. The company’s profit is expected to grow annually by 24% over the next five years. Micron is in a good position to record such impressive growth thanks to its growing share of the memory market.

Memory market research provider TrendForce estimates that Micron’s share of the DRAM (Dynamic Random Access) market grew by four percentage points to 25% in the third quarter of 2021. Micron’s growing influence in the DRAM space is good news for the company as this market is tuned for secular growth thanks to a host of catalysts.

Smartphones, for example, have opened up huge volume opportunities for Micron thanks to the advent of 5G wireless networks. The chipmaker notes that 5G smartphones use 50% more DRAM than 4G devices, and their shipments are expected to increase to 700 million units this year from 500 million in 2021.

Meanwhile, the addition of autonomous driving features in self-driving cars is another factor contributing to the growth of the Micron address market. A memory expert notes that this year electric vehicles with the ability to control the 3rd level have 140 gigabytes of DRAM. This explains Micron’s revenue from automotive production by 25% over the same period last quarter and points to huge opportunities for the chip maker as the proliferation of autonomous vehicles grows.

Therefore, the growing demand for memory from various end markets should be a long-term turning point for Micron technology, which should help this semiconductor game to ensure solid growth.

Verdict

AMD is expected to grow faster than Micron, but now the evaluation of the former is a drawback. AMD traded 47 times behind profits, up from a multiple of 15 Micron. The Micron 3.7 price-to-sales ratio is also lower than AMD’s multiples of 9.

This explains why Micron shares have not suffered as much as AMD. Micron’s cheap rating and decent growth make it an ideal choice for investors looking for a valuable game. In addition, the likelihood that the Fed will raise rates several times this year could be an obstacle for stocks such as AMD, making Micron Technology the best choice of the two technology stocks.

This article reflects the opinion of a writer who may disagree with the “official” recommendation position of the premium Motley Fool Advisory Service. We are motley! Challenging the thesis of investing – even one of our own – helps all of us think critically about investing and making decisions that will help us become smarter, happier and richer.

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