To The Moon

$Advanced Micro Devices(AMD)$ $Micron Technology(MU)$

It looks like another challenging day for the S&P 500, but the semiconductor industry appears relatively strong. When reviewing 2024 performance, semiconductors as a whole have held up reasonably well, though individual stocks like AMD and Micron tell a more nuanced story. AMD is down 15%, and Micron has risen just 4%. In today’s discussion, we’ll analyze both stocks to determine which offers a better growth opportunity for 2025.

Chips: The New Oil

You may have heard the phrase "semiconductors or chips are the new oil," but at Chip Stock Investor, we see it differently. We believe Chip is the new oil, while semiconductors are better likened to the oil pipelines and infrastructure that enable its flow.

This idea is particularly evident in areas like accelerated computing and AI. Today, data fuels almost everything—from traditional to digital economies. It is extracted from countless products and services to train AI models. Semiconductors serve as the critical infrastructure enabling this transformation.

The Race for Semiconductor Supremacy

Globally, nations are competing to onshore or friend-shore semiconductor manufacturing to secure advanced chip supplies. Why? They recognize semiconductors as the foundational infrastructure supporting next-gen technologies. This infrastructure is rapidly expanding, with forecasts suggesting that total semiconductor end-market sales will reach $1 trillion by 2030.

By 2025, these sales are projected to approach $700 billion, representing a 10–15% year-over-year growth. This market includes Integrated Device Manufacturers (IDMs) like Intel, Micron, and Samsung, as well as fabless chip designers like NVIDIA, AMD, and Broadcom. These companies sell their chips to tech equipment manufacturers for use in data centers, smartphones, and more.

With an expected 8% compound annual growth rate (CAGR) through 2030, the semiconductor industry is poised for healthy expansion. In upcoming content, we’ll explore the global semiconductor supply chain, highlighting top companies in various segments. Be sure to subscribe for updates and access our global supply chain chart through a Semiconductor Insider membership—link in the description below.

let get into the main topic today, both AMD and Micron are trading near their 52-week lows. Could one of these stocks provide returns surpassing the S&P 500 in the coming year? Here’s a quick overview:

Company Profiles

Micron Technology focuses on memory and storage solutions, including DRAM and NAND flash memory, which are critical for computing devices and data centers.

AMD develops CPUs and GPUs for PCs, servers, and gaming consoles, with an increasing emphasis on AI and data centers.

Performance Snapshot

AMD: Down 16% over the last year but has outperformed over the past decade, surging 4,600%. Forward P/E is 24.46, with no dividend payout.

Micron: Up 4% over the last year but under performed compared to the S&P 500 over the last decade. Forward P/E is 7.89, with a modest dividend yield of 0.51%.

Growth Prospects

AMD: Earnings per share (EPS) are expected to grow at 42% annually over the next 3-5 years, well above the sector median of 15.6%. While historical free cash flow has been inconsistent, forecasts indicate significant growth.

Micron: EPS growth is projected at 36.6%, also outperforming the sector median. The company’s high-bandwidth memory for AI applications has seen strong demand, but it has faced challenges due to weak PC and smartphone markets.

Valuation and Financials

AMD: Intrinsic value based on discounted cash flow (DCF) is estimated at $189, suggesting 51% upside. Its balance sheet is strong, with no net debt.

Micron: Intrinsic value from DCF is $138, indicating 55% upside. While the balance sheet is solid, its dividend growth has stalled since 2022.

Key Metrics

Free Cash Flow: Both companies show inconsistency due to the cyclical nature of the semiconductor industry, but both are expected to improve significantly in the next 12 months.

ROIC: Both companies lack consistent returns on invested capital, reflecting the volatility of the sector.

Analyst Ratings

• AMD: Analysts give it a “Buy” rating, with an average price target of $188, implying 50% upside.

• Micron: Analysts also rate it a “Buy,” with a target of $140, indicating 57% upside.

Understanding End-Market Demand Cycles

End-market cycles play a pivotal role in semiconductor investments, and recent years have seen significant shifts across these markets. As 2024 comes to a close, here’s where things stand:

AI Infrastructure (Accelerated Computing): This market, led by NVIDIA and supported by AMD, Broadcom, and others, continues to grow at a rapid pace, still in its maximum growth phase.

Consumer and Cloud Enterprise Markets: After bottoming out in late 2023, these markets are now in the early stages of recovery. Growth is gradual but steady, resembling a gentle upward curve.

Automotive and Industrial Markets: Recovery in these sectors has been slower than anticipated, resulting in what management teams are describing as a U-shaped recovery. While sales remain muted as we enter 2025, the hope is for a more pronounced uptick by mid-year as inventory levels stabilize.

Conclusion

Both AMD and Micron are poised for growth, with similar margins of safety (35%) and promising upside potential. AMD benefits from strong growth in processing technology, while Micron is making strides in AI-related memory solutions. The choice between the two depends on your investment goals, risk tolerance, and horizon.

Which do you think has better growth prospects for 2025 and beyond—AMD or Micron?