The artificial intelligence (AI) craze has turned out to be a massive catalyst for many companies in the past year or so, which is evident from the huge stock price gains clocked by the likes of Nvidia, Palantir Technologies, and others who are benefiting from the adoption of this technology.
Shares of Nvidia, for instance, are up 92% in 2024 already thanks to the terrific growth from selling its AI chips. Palantir, meanwhile, is up more than 42% this year following a sharp surge in the wake of its latest quarterly results. And now, it looks like Broadcom (AVGO 2.66%) and Micron Technology (MU +0.59%) are set to join the bandwagon as well and witness a parabolic jump in their share prices.
A parabolic move refers to a big jump in the stock price of a company in a short period, like the right side of a parabolic curve. Shares of both Broadcom and Micron have seen big jumps in their stock prices of late thanks to their growing AI credentials. More importantly, it won't be surprising to see them sustain their recent pops and go on a parabolic run.
1. Broadcom
Broadcom stock recently got a shot in the arm following an investor event called "Enabling AI in Infrastructure." During this event, Broadcom revealed that it now has three customers for its custom AI chips. For comparison, on its earnings conference call earlier this month, Broadcom management said it is witnessing "strong demand for our custom AI accelerators at our two hyperscale customers."
NASDAQ: AVGO
Key Data Points
Broadcom's custom AI processors were already being used by the likes of Meta Platforms and Alphabet, and speculation indicates that the new addition could be Amazon, Apple, or TikTok parent company ByteDance. It is worth noting that Broadcom was already enjoying rapid growth in AI chip sales before this new customer came on board. The chipmaker's AI revenue quadrupled on a year-over-year basis in the previous quarter to $2.3 billion.
What's more, Broadcom was expecting to finish fiscal 2024 with more than $10 billion in AI revenue even before the new customer came on board. Now that the company expects to ramp up the production of AI chips for its new customers this year itself, there is a good chance that it could very well exceed its forecast.
The company was originally expecting AI to account for a quarter of its total revenue this year, up from 15% in the previous fiscal year. However, AI seems set to move the needle in a bigger way for Broadcom. More importantly, the company's solid share of the application-specific integrated circuit (ASIC) market means that it can win big from the growing demand for custom AI accelerators in the long run.
All this explains why analyst sentiment around Broadcom is improving following the company's latest event. Investment bank TD Cowen has raised its Broadcom price target to $1,500 from $1,400, while also raising the rating on the stock to outperform from market perform.
With Broadcom stock trading at 28 times forward earnings, in line with the Nasdaq-100's forward earnings multiple, now looks like a good time to buy the stock. Broadcom seems on track to outpace Wall Street's growth expectations on account of its new AI customer, which could encourage the market to reward it with a higher earnings multiple and potentially send the stock on a parabolic run.
2. Micron Technology
Micron Technology stock jumped 14% following its second-quarter fiscal 2024 earnings report (for the quarter ended Feb. 29, 2024), which was released on March 20. AI played a central role in Micron's surge as the growing demand for memory chips used in AI servers, personal computers (PCs), and smartphones led to a big year-over-year jump in the company's revenue and earnings.
NASDAQ: MU
Key Data Points
The chipmaker's revenue shot up 58% year over year to $5.82 billion. It swung to an adjusted profit of $0.42 per share from a loss of $1.91 per share in the same period last year. Analysts would have settled for a loss of $0.25 per share on $5.35 billion in revenue. The good part is that Micron's growth is set to accelerate in the current quarter. Its revenue guidance of $6.6 billion points toward year-over-year growth of 76%.
As already mentioned, Micron is on track to take advantage of the growing adoption of memory chips in multiple niches. For instance, in AI servers, the company's high-bandwidth memory (HBM) is being deployed by Nvidia. The graphics specialist recently announced its next-generation Blackwell AI GPUs (graphics processing units), and Micron points out that these chips carry 33% more HBM.
Meanwhile, Micron says that AI-enabled PCs could be equipped with 40% to 80% more DRAM content as compared to usual PCs. On the other hand, Micron expects AI-capable smartphones to "carry 50 to 100% greater DRAM content compared to non-AI flagship phones today." All this indicates that the memory market has a bright future thanks to AI, and Micron is benefiting from the same.
Not surprisingly, analysts are expecting the company's earnings growth to accelerate significantly in fiscal 2024 and beyond.
MU EPS Estimates for Current Fiscal Year data by YCharts
Micron reported a loss of $4.45 per share in fiscal 2023, and the above chart is an indication that its bottom-line growth is set to take off remarkably going forward. This terrific growth in Micron's earnings is likely to translate into robust stock upside as well. Even better, the possibility of a parabolic jump in the share price cannot be ruled out considering how fast the company is growing, which could encourage the market to reward it with a premium valuation.
That's why investors would do well to buy the stock right away. Its price-to-sales ratio of 6.6, a discount to the Nasdaq-100 Technology Sector index's multiple of 7.4, means it is a solid bargain right now.
