Zhitong Finance APP observes that Nvidia’s stock price has more than doubled so far in 2020, thanks to the strong momentum of the company’s video gaming and data center businesses, but Micron Technology has experienced a difficult time as it seems that there Uncertainty about mem

Zhitong Finance APP observed that Nvidia (NVDA.US) stock price has more than doubled so far in 2020, thanks to the strong momentum of the company's video game and data center businesses, but Micron Technology (MU.US) is going through a tough time as there seems to be uncertainty about the dynamics of the memory industry.

Micron's weak expectations for the upcoming quarters have spooked investors recently. Nvidia , on the other hand, promises better future growth with new products and opportunities to profit in a fast-growing market. However, not all investors like Nvidia stock because it is overvalued. In comparison, Micron's valuation is more reasonable.

Storage industry weakness won't be long-lasting

Micron Technology's performance in recent weeks may have spooked investors, but dynamics in the memory industry seem to indicate that the industry's fortunes may be changing. Goldman Sachs recently raised Micron Technology shares as it expects memory prices to strengthen. The investment bank also said that the recent weakness in memory prices will not last long.

The good news for Micron is that the price of spot memory modules has begun to improve. What's more, the memory industry can rely on a few catalysts that could lead to a stronger pricing environment. New graphics cards launched by Nvidia and AMD, as well as game consoles launched by Sony and Microsoft, are expected to lead to stronger demand for graphics card DRAM (dynamic random access memory).

On the other hand, mobile DRAM demand is likely to improve as the smartphone industry and consumers transition to 5G devices. The mobile business makes up a sizable portion of Micron's total revenue and has been growing at an impressive rate. This growing trend is unlikely to disappear anytime soon, as 5G smartphone shipments are expected to surge in the coming year.

Additionally, in the second half of 2020, investments in memory manufacturing capabilities are expected to slow as industry players scale back spending to adapt to weaker demand. Cloud computing companies have seen memory demand rise sharply in the first half of the year, following coronavirus-related lockdowns that put more pressure on data centers. However, data center operators are reportedly cutting back on their investments, leading to weak memory prices in the short term. But once new catalysts come into play and reduced supply occurs, memory prices are expected to firm up again and help Micron improve its performance.

Industry observers predict that the memory market will start to improve from the first quarter of 2021 as the supply and demand situation improves. As inventory levels begin to normalize, data center demand is likely to pick up again, complementing the other tailwinds listed above. Micron Technology 's financial health relies heavily on memory prices, so improving memory prices should bode well for the company's future.

Nvidia continues to grow

Nvidia 's two largest businesses have achieved impressive momentum this year.

First, Nvidia has launched a new generation of graphics cards with aggressive pricing that may force its large installed base to upgrade. Video games were Nvidia's second-largest business last quarter, accounting for nearly 43% of its total revenue, so the company is poised to be wildly successful in its transition to a new generation of GPUs.

Likewise, the company's data center business is booming due to increased demand for GPU accelerators to handle artificial intelligence workloads. Now Nvidia is looking to take further action to bolster its dominance in semiconductors, spending $40 billion to acquire chip design company Arm.

The deal is still awaiting regulatory approval, but it could be a big deal for Nvidia because Arm's technology can power smartphones from the likes of Samsung and Apple. Nvidia plans to use Arm's technology to target a variety of markets ranging from self-driving cars to personal computers, the Internet of Things (IoT), and robots.

Artificial intelligence (AI) appears to be one of the key reasons Nvidia is investing heavily in Arm. Nvidia CEO explained: "In the next few years, trillions of computers running artificial intelligence will create a new Internet of Things thousands of times larger than today's human network." "Our merger will create a company that is at the forefront of the artificial intelligence era." A company of incredible status."

Allied Market Research estimates that the market for artificial intelligence chips could reach $91 billion by 2025, up from $6.6 billion in 2018. Nvidia ’s acquisition of Arm may play an important role in helping it break into this fast-growing market, as Arm is already designing chips for artificial intelligence-enabled sensors that can be used in everything from the automotive industry to toys. application.

So it wouldn’t be surprising if AI becomes a big part of Nvidia’s future, following gaming and data centers, as the tech giant now looks to make AI a major part of its business with recent acquisitions . How to choose

?

Nvidia is not a stock for value investors. The stock currently trades at nearly 95 times earnings, more than double its five-year average of 44 times. The expected price-to-earnings ratio is close to 59 times.

Considering Nvidia ’s impressive growth rate, its high valuation seems justified. But those with a lower risk appetite may feel uncomfortable buying it because the company must continually meet Wall Street's high growth expectations. Failure to meet expectations could result in a significant correction in the stock price, which is why Micron may be a better fit for investors looking for value and growth.