The semiconductor industry, central to modern digital technologies and artificial intelligence, is experiencing unprecedented growth and transformation. As industries increasingly adopt AI, analysts project the AI market could swell to a staggering $909 billion by 2030. This boom presents lucrative opportunities for investors, particularly in AI chip stocks like Intel (NASDAQ:INTC) and Micron (NASDAQ:MU). However, Baird’s 5-star analyst, Tristan Gerra, advises careful selection, as these companies vary significantly in their potential for growth and profitability.
Intel has long dominated the personal computer CPU market, maintaining a 63% market share with its Core processor series. Last year, the company generated $54.22 billion in revenue, ranking fourth among its peers. Intel is strategically pivoting towards AI, launching new chipsets to meet AI demands, and leveraging substantial funding and loans from the Federal CHIPS Act to enhance its manufacturing capabilities. This includes a new foundry in New Mexico focusing on advanced 18A fabrication technology, poised for production in 2025.
Despite these ambitious efforts, Intel faces challenges. The upcoming 18A technology launch and the insourcing of more components may strain margins due to high initial costs. Furthermore, the growth potential of Intel’s traditional x86 market is modest, threatened by the rise of GPUs and ARM architectures in data centers and PCs. Consequently, Gerra rates Intel shares as Neutral, with a $40 price target that suggests a 30% upside, mirroring the broader market’s cautious stance with mixed analyst ratings.
Conversely, Micron, known for its high-quality DRAM and NAND memory chips, has effectively capitalized on the AI and data center boom. The Idaho-based company also serves diverse sectors like 5G, IoT, and autonomous vehicles. Recently, Micron secured a $6.1 billion funding agreement under the CHIPS Act, planning a significant capital investment of up to $50 billion through 2030. This funding will bolster its already strong market presence, highlighted by its latest launch of 128GB DDR5 server DRAM chips, tailored for AI applications.
Micron’s recent earnings outperformed expectations, with revenues soaring to $5.82 billion, a 57% increase year-over-year, and non-GAAP earnings surpassing estimates. Looking ahead, Micron’s guidance remains robust, forecasting further growth. Gerra is optimistic about Micron’s future, citing strong DRAM pricing and potential high margins from upcoming products, giving MU shares an Outperform rating with a $150 price target.
When juxtaposed, it’s clear Baird’s Tristan Gerra views Micron as the more promising investment. While Intel navigates a challenging transition, Micron is aligning its operations with the industry’s lucrative segments, positioning it for sustained growth. As the semiconductor landscape evolves with AI integration, investors should consider the differentiated paths and potential of these two industry giants. Micron appears to be on a more direct route to capitalizing on the next wave of technological advancements, making it the preferred choice for those looking to invest in semiconductor stocks.
