Continue buying MU; current valuation reflects expected profit decline, making it better value than AMD despite cycle risks.

But if you had invested that amount in Micron instead , you would now have around $60,000. The stock of both companies has skyrocketed because they both manufacture chips that artificial intelligence data centers cannot afford to produce .

But Micron delivered much larger profits for investors. A return equivalent to 10 times the investment in just two years. My name is Alex, and I spent 8 years as an electrical engineer and artificial intelligence researcher at the Massachusetts Institute of Technology (MIT), which helped me find excellent stocks like Nvidia, TSMC, and Micron years before the rest of the market.

So, let me explain why I chose Micron over AMD over the past few years , and what I think of both stocks today.

Why did artificial intelligence and proxies cause the stocks of both companies to rise, and what made me choose Micron over AMD years ago and stick with it to this day?

I will compare the latest earnings of AMD and Micron to see if my logic still holds true, and of course which of these two stocks I will buy today as a result.

There's a lot to cover, so let's start with what made these stocks rise so wildly in the first place.

Micron expects memory supplies to remain limited beyond 2027. Micron is also facing the same problem as Intel, saying it can only meet half to two-thirds of the demand from its major customers.

Micron's DRAM prices jumped by more than 60% last spring.

On the other hand, memory manufacturers make their profits regardless of who wins in the GPU or CPU markets, because every processor needs DRAM. This is what made me start buying Micron shares years ago and I have continued to buy them ever since.

In the last quarter, Micron's data center division generated $34 billion. This is roughly equivalent to three times the combined data center revenues of AMD and Intel.

And don't forget that Micron isn't even the biggest memory manufacturer. Samsung has generated significantly higher revenues . AMD and Micron are each valued at around one trillion dollars today.

Wall Street expects the two companies to nearly double their profits next year. Investors are paying more than 45 times AMD's projected next year's earnings, but less than 7 times for Micron.

In other words, AMD is about seven times more expensive than Micron per dollar of projected profit.

Micron's earnings report came out just a few days ago, with revenues of $54.2 billion . This exceeds its expectations by about 8%, which is nearly five times what it achieved a year ago.

Therefore, Micron not only generates four times the revenue of AMD, but it achieves this with much higher profit margins. AMD recorded gross profit margins of 56%. Micron recorded a rate of 87%.

Micron expects revenues for the next quarter to reach $61.5 billion. This represents roughly the same 13% jump in revenue that AMD is forecasting, but from a base that is more than four times larger.

Micron also has a large portion of its revenue protected by contracts. It has signed 26 long- term deals covering more than a third of its total revenue through 2030, and is already backed by $32 billion in customer commitments.

Most of its high-bandwidth memory has already been sold through 2027 at prices much higher than this year. But Micron also faces some risks that investors should take into account.

Firstly, memory prices are still rising, but at a much slower pace than before.

Micron's DRAM prices jumped by more than 60% last spring, and by less than 20% during the summer, and Micron expects a slower rate of price increase going forward.

Much of Micron's growth has come from these price increases, so its own growth is already slowing down. On a quarterly basis, their revenue grew by 74% two quarters ago, and by 31% in the last quarter, and they expect sequential growth of 13% in the next quarter.

The second risk is that Micron is spending too much on new factories to meet future demand. They spent $27 billion on factories and equipment in the last fiscal year, and plan to spend about an additional $25 billion in the next six months alone.

So, between the slowing rise in memory prices and all their new spending on production, Micron's profit margins should start to decline over time. I believe this is a major reason why Micron is trading at a much lower price-to-earnings ratio than AMD.

Memory has one of the most brutal boom-bust cycles in the tech world. As a long-term contributor to Micron, I have witnessed some of them, the last one being just a few years ago .

In the spring of 2022, Micron generated $8.6 billion in revenue. After nine months, their revenue had fallen to $3.7 billion, and their gross profit margins had plummeted to negative 33%.

Micron was forced to write off nearly $2 billion worth of chips because their value became less than the cost of manufacturing them, and they were forced to reduce chip production by about 20% and their workforce by 10%, and their stock fell by half .

The major risk facing investors is that memory stocks appear to be at their cheapest at their peak performance. This is because the profits become so high that the market value seems small in comparison.

In January 2018, Micron was trading at only 4.5 times forward earnings. Over the next year , the stock fell by 27% . In June 2022, the stock was trading at approximately 6.5 times forward earnings. But by September, it had fallen by another 35%.

Micron's stock is currently trading at less than seven times forward earnings again.

The stock price also tends to peak before earnings. In 2022, Micron's stock peaked in January while their revenues continued to set records through June.

So, when memory prices start to slow down as they are now , many investors don't wait to see how this cycle will end . The biggest difference today is high-bandwidth memory (HBM).

HBM uses about three times as much silicon as regular DRAM memory, and this ratio continues to rise with each new generation.

This means that each new generation of HBM chips consumes more of the supply that could have been directed to regular memory, which is a major factor in the overall memory shortage .

Micron's long-term contracts also include a price floor, and Micron said it expects its profit margins to be significantly higher than the peak margins of any previous cycle, even at those lower prices.

But these contracts only cover a third of Micron's revenue. The rest of the revenue still depends on the market. There are many memory supplies about to enter the market. Micron's new factories in Idaho and Japan will begin production between mid-2027 and late 2028.

Samsung and SK Hynix are also ramping up production. Specifically, Samsung was catching up quickly when it came to high-bandwidth memory. Their market share jumped from 21% to 33% in one quarter, while Micron's share fell from 21% to 18%.

Micron's share fell from 21% to 18%. The decline in Micron's forward price-to-earnings ratio is the market's bet that this cycle will end as it always does.

Okay, let's answer the big question. Which of these two high- growth AI chip stocks is the best to buy today?

Now, let's decide between AMD stock and Micron stock. The best way to compare them is to find out what is actually included in the stock price.

Micron's stock is in a completely opposite position . If Micron were to trade at 17 or 18 times earnings, the stock price would be over $2,700.

Therefore, the current price only makes sense if Micron's long-term earnings fall by about 60% from what Wall Street expects next year and stay there in the long run.

But analysts actually expect Micron's profits to continue rising until 2028. Micron also generated $33 billion in free cash flow in the last quarter alone. They have $68 billion in cash that exceeds their debt, and they plan to increase share buybacks and eventually distribute all the excess liquidity to shareholders.

So, based on today's numbers, Micron stock represents a much better value, but it may also be the most volatile.

If memory prices continue to slow, the stock could fall sharply while their earnings continue to grow, just as they did in 2018 and 2022. Micron's stock price presupposes a significant drop in profits, even though a third of their revenue is already contracted,

and high-bandwidth memory makes this cycle markedly different from the previous two, and they are about to increase the amounts directed to shareholders through share buybacks .

For this reason, my current plan is to continue buying Micron shares , even though they have already increased 10 times since I started.

If DRAM futures prices start to stabilize or even decline while they continue to spend more money on new factories, that's my signal to stop buying the stock.