Why Micron Technology Could Be the Nvidia of the 2020s

Key Points

Several new markets are driving demand for Micron’s technology, similar to what propelled Nvidia’s growth.

New use cases across artificial intelligence, IoT, and 5G were not contributors to Micron’s growth six years ago, but they are now.

The start of a quarterly dividend is one sign that management sees sustainable growth.

A $1,000 investment in Nvidia ( NASDAQ:NVDA ) in 2012 would be worth $57,000 today. That’s what can happen when you invest in a growing tech company that experiences expanding use cases for its products. Nvidia successfully applied its graphics processing units (GPUs) to new markets like the data center, as opposed to relying on demand from PC gamers, and revenue exploded.

Micron Technology ( NASDAQ:MU ) could see a similar growth opportunity over the next decade. It’s one of the leading producers of dynamic random-access memory (DRAM) modules and non-volatile flash memory (NAND) used in solid-state drives. Vehicles, phones, data centers, and the Internet of Things (IoT) are getting more complicated technologically, and that’s good news for Micron. More advanced features and data consumption means higher demand for its memory and storage solutions, and Micron is already reporting strong revenue growth in 2022 because of these trends.

Could buying shares of Micron today lead to Nvidia-like returns over the next 10 years? Let’s find out. MU data by YCharts A lot has changed in six years

It’s telling to compare Micron’s annual report from fiscal 2015 to fiscal 2021. Six years ago, there was no mention of artificial intelligence , IoT, driver-assistance systems, or high-resolution smartphone cameras — all of which are now contributing to Micron’s growth in 2022.

Micron’s mobile business unit grew 26% in fiscal 2021. New high-end smartphones are featuring larger 4K displays, advanced features, high-resolution video recording, and processors that enable real-time translation, image search, and scene detection. All of these technologies need higher levels of NAND and low-power double data rate DRAM, or LPDRAM, which is right up Micron’s alley. Compute and networking $12.28 billion $9.18 billion 34% Mobile $7.2 billion $5.7 billion 26% Storage $3.97 billion $3.77 billion 6% Embedded $4.2 billion $2.76 billion 53% Total revenue $27.7 billion $21.4 billion 29% Cloud computing, which is included in Micron’s storage business unit, is another monster growth opportunity. This business reported 5.5% revenue growth last year, but more specifically, data-center revenue grew 70% over the year-ago quarter in the most recent quarter. Last year, Micron was first to market with its 176-layer NAND flash memory that is used in data center solid-state drives (SSDs).

Another attractive business for Micron is the embedded business unit, including revenue from industrial, IoT, and automotive applications. Micron reported more than 80% year-over-year revenue growth in industrial IoT products last quarter, while auto revenue grew 25%.

Data center is the largest market for memory and storage. Management sees a strong ramp-up of data center SSD revenue continuing in the next quarter.

Mobile revenue increased 25% in the fiscal first quarter, and management sees continued growth in this market as the 5G upgrade cycle continues. Higher demand coming from the data center and mobile markets puts Micron on pace to have a record year in terms of revenue, based on management’s outlook. Image source: Getty Images. Signs of sustainable demand

Management sent two strong signals of sustainable long-term growth to shareholders last year.

First, it announced an investment of up to $150 billion through 2030 in manufacturing and research and development. Second, Micron initiated a quarterly dividend of $0.10 per share. Note that in 2012, just as Nvidia was about to deliver wealth-building returns to investors, the graphics specialist initiated its first-ever quarterly dividend. Investors should take Micron’s dividend seriously.

Over the last year, Micron generated $3.9 billion in free cash flow on $29 billion in revenue. The dividend and capital spending plan say two things: Management expects growing demand for its technology, and it expects to generate sustainable growth in free cash flow. Is Micron the next Nvidia?

Despite all these positive indicators, the stock continues to trade at an unbelievable value of just 8.3 times this year’s profit forecast. The stock could certainly deliver market-beating returns to investors from this low valuation level.

However, there is one key difference between Micron and Nvidia that investors should know about. When Nvidia began its run 10 years ago, it was already the dominant leader in GPUs. Nvidia’s only competition was Advanced Micro Devices . Micron doesn’t have this luxury. The market for DRAM and NAND technology is much more competitive, with Micron currently sitting […]

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