Should You Buy Micron Stock Instead of Nvidia Stock? | MU Stock vs. NVDA Stock

SUMMARY

Parkev Tatevosian, CFA, compares Nvidia and Micron, analyzing their revenue growth, profitability, capital efficiency, and valuation. He concludes that while both stocks are attractive buys, Nvidia's competitive advantages and sustainable margins make it the preferred choice.

MAIN POINTS

• Nvidia and Micron have both experienced significant revenue growth, with Nvidia's revenue now far surpassing Micron's. [0:30]
• Micron's recent surge in revenue and profit margins is driven by supply shortages and soaring component prices, while Nvidia's growth is attributed to sustained innovation and unit sales. [1:30]
• Nvidia holds a stronger competitive advantage through its technology and software integration, whereas Micron lags in leading-edge memory for data centers. [2:30]
• Nvidia operates with an asset-light model and achieves a much higher return on invested capital compared to Micron's capital-intensive approach. [3:30]
• Both companies appear undervalued based on forward price-to-earnings and discounted cash flow analysis, but Nvidia trades at a higher multiple than Micron. [5:00]
• Despite both being rated as buys, Nvidia is favored for its durable profit margins and competitive edge, while Micron's performance is seen as more cyclical and dependent on supply-demand dynamics. [7:00]

DETAILED ANALYSIS

Nvidia and Micron, two prominent semiconductor companies, have demonstrated impressive revenue growth over the past decade. Nvidia's revenue has soared from under $5 billion in 2017 to $253 billion on a trailing 12-month basis, significantly outpacing Micron, which reported $90.3 billion. Micron's recent performance has been fueled by supply shortages in memory and storage, resulting in dramatic price increases for its products—some categories experiencing 200-300% year-over-year growth.

However, the underlying unit growth for Micron remains below 20%, suggesting that the revenue surge is primarily price-driven and potentially less sustainable.

In contrast, Nvidia's growth stems from both increased unit sales and ongoing innovation, supported by a robust software ecosystem that enhances its competitive differentiation. While both companies have reported strong improvements in operating profit margins—Nvidia at 64% and Micron at 65.75%—Micron's margins are considered less sustainable due to their dependence on current market imbalances. Over the next four to six quarters, Micron's margins may continue to exceed Nvidia's, but longer-term expectations are more moderate for both firms.

A key distinction lies in their business models: Micron is capital-intensive, owning and operating manufacturing facilities, while Nvidia employs an asset-light strategy, outsourcing production to Taiwan Semiconductor Manufacturing Company. This difference is reflected in their return on invested capital, with Nvidia achieving 112% compared to Micron's 63%. Both companies' returns are expected to normalize over time, with Nvidia potentially maintaining a long-term average of 40-60% and Micron 30-40%.

Valuation analysis reveals that Nvidia trades at a forward price-to-earnings ratio of 15.3, nearly three times Micron's 5.3, yet both are considered undervalued based on discounted cash flow calculations. Nvidia's fair value is estimated at $305 per share versus a current price of $197, while Micron's fair value is $1,487 compared to $820. Despite the attractive valuations, Nvidia is preferred due to its sustainable competitive advantages and more resilient profit margins, making it a stronger long-term investment candidate.

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