Best AI Stock to Buy: Micron Stock vs. AMD Stock

AMD or Micron? HBM or CPU? These are two of the hottest stocks right now because of soaring demand for CPUs and HBM memory that's going into data centers. But which one of these two is the better stock to buy at current market prices? That's the question I'm going to answer in this video by comparing the two across financial metrics that are critically important including valuation to come up with a conclusion. I want to thank The Motley Fool for sponsoring this video. Visit fool.com/parkev for the 10 best stocks to buy now. So I wanted to start by comparing revenue and right off the bat we see a big difference here. Micron is already generating exponential revenue growth. You can see here in the orange Micron's revenue soared to over $90 billion over the trailing 12-month period. That's up from less than $20 billion in 2017 and in fact didn't less than $20 billion in 2024. The company's revenue has soared in response to increasing demand for high-bandwidth memory that's going into the data centers and prices are increasing substantially. That's what's driving most of the growth for Micron is the price per unit it's getting for its products because of the supply-demand dynamic not because it's selling more units but mostly because it's selling at higher prices. Meanwhile, AMD's revenue is also increasing but not as exponentially. It totaled 37 and 1/2 billion in the most recent trailing 12-month period. That's up from around 7 billion in 2017. AMD's revenue growth has been more longer-lasting, more persistent, and less recent and less directly connected to the growth in AI but the company's CPUs are also in great demand and it's likely to experience a significant growth for those products that are going into the data centers given the proliferation of agentic AI which is placing more importance on the CPU and less importance on the GPU. Speaking of those expectations for revenue growth, AMD is expected to grow its revenue from $34.6 billion in 2025 all the way up over $104 billion by 2028. This is according to the Wall Street analysts that are following the company and their forecasts for the company's revenue over these next 3 years which include 43% growth in 2026 followed by 56% growth in 2027 before slowing down to 36% growth in 2028. What's more, the company's growth is likely to continue beyond these next 3 years as more and more of the artificial intelligence dollars that are being spent are going towards agentic AI solutions. Micron is also expected to generate significant revenue growth over these next 3 years but it's more heavily weighted towards the near term. The company's forecast is to grow revenue from $37.4 billion in 2025 up to $130 billion in 2026. This is a more than tripling of the company's revenue in just 1 year. It's 247% growth to be more precise. And you would think the growth would stop after that phenomenal growth in 1 year but the analyst on Wall Street expect it to continue again in 2027 with 81% growth projected. The slowdown is not expected to happen until 2028 where the company's revenue is expected to increase by 10.6%. Still, by the time it's all said and done over these next 3 years, Micron's revenue is forecast to grow from 37.4 billion in 2025 up to 259 billion by 2028. By that point, the analysts on Wall Street that are forecasting these growth projections for Micron expect increasing supply in the industry to offset the supply-demand shortages and to cause prices per unit to drop down. But then that would leave a more sustainable business, a more sustainable industry that's generating more revenue due to more units sold rather than due to higher prices generated for each unit. And the reason why that's more sustainable is because the people, the enterprises, the institutions that are buying these products will be getting a better ROI if they're paying a lower price per unit, but they're getting more units, they're getting more capabilities, and so their ROI will be higher and the industry overall will be more sustainable if revenue is at those levels, but with more supply and lower prices. The next thing I wanted to compare these two across is their operating profit margins. Now, I wanted to go back a decade so I can see the businesses beyond what's been happening in recent quarters. And the comparison is interesting, and Micron has held an advantage against AMD in its operating profit margin for the better part of the previous decade, not just recently. But recently, what's happened is that lead has expanded. Micron's operating profit margins soared to over 65% in the most recent trailing 12-month period. In fact, they were over 80% in the most recent quarter, and that's well above what AMD reported in its most recently completed trailing 12-month period at just 11 and 3/4%. So, looking forward, I would expect Micron's operating profit margins to exceed AMD's by a large margin over these next 3 years if the projections by Wall Street analysts prove to be anywhere near accurate. Right? It doesn't have to be precisely accurate, but if those revenue growth projections are anywhere near accurate, then Micron's operating margins are likely to be significantly better than AMD's at least for the next 3-year period. And given that the longer-term strategic customer agreements that are being signed by Micron and AMD, that leaves the companies at lower risk. What I mean by that is they can plan better for their inventory needs because they have longer-term agreements and better understanding of what their customers need. So, they can plan ahead and have the products that customers need. And so, they don't create and manufacture products that might go unsold or might need discounts to make them sell. Similarly, for their research and development efforts, it makes them less risky because they know what their customers are looking for, and so they can target their research and development efforts in categories where their customers have said they will need to spend money over these next few years and these next few uh decades perhaps. And so, these businesses have become a lot less risky in recent years in some way as a result of the booming demand from AI. And in other ways, they've become a little more risky because investors have forecasted such significant growth, and those growth prospects have been priced into the company's valuations. The next metric I wanted to compare these two on is the return on invested capital. And this has been more of a mixed story. been a clear advantage for Micron for the whole decade, but it has been for the most part an advantage for Micron. AMD benefited uh during the pandemic lockdown periods and other than that Micron held the advantage in returns on invested capital and especially in the most recent trading 12-month period at 63%. It's phenomenally positive. This is among the best of the best in return on invested capital and I will highlight that Micron uh in its most recently reported quarter, it's operating profit margin at above 80 percent. It's the best quarter I've ever witnessed in any of the companies that I've been following for the better part of the previous decade that I've been doing this. So, Micron's margins, their profits are absolutely excellent and unmatched right now the way their business is booming. So, now that we compared the two on these important financial metrics, let's look at valuation and here's where it gets really interesting because AMD is trading at a forward price to earnings of 73. That's about six times as expensive as Micron, which is trading at a forward price to earnings of 13.6. Now, the primary reason for this is the analysts on Wall Street and the stock market overall is forecasting that Micron's business declines after this near-term boom. That when the supply demand dynamics are better balanced, that Micron's earnings per share won't be growing as significantly and in fact their earnings per share might decline. And so investors are not giving Micron Technology that much credit for a structural improvement in the business, not a temporary improvement in the business. So, right now investors on Wall Street are still placing Micron in that category where they're experiencing a temporary boom. Something like Zoom video did during the pandemic where because we were all working and learning from home, Zoom video was in an excellent position, but when the economy reopens, Zoom video won't be in such an excellent position. Right? It was a temporary boom. And that's the kind of forward-looking expectations investors are placing on Micron Technology that once the supply-demand dynamic improves, once the hyperscalers slow down their capital expenditures in building out these data centers, once they reach a level where they feel comfortable with the quantity of computing power they hold, then Micron Technology will return back to its cyclical nature and its earnings per share and revenue will fall as it has in previous cycles. But that's not what they're estimating for AMD. For AMD, they're forecasting a longer-term structural lift in the company's profitability and sales, and partly also because AMD's earnings per share and operating profits have not expanded to anywhere near the degree of Micron. So, analysts are forecasting AMD to experience that moment over these next few years as their revenue captures some of that soaring demand from H&T AI and the proliferation. And I like to look at valuation also using a discounted cash flow model, and I see a similar story here with AMD's market price above its fair value. It's trading at $547 per share, and the intrinsic value is $381. So, to me it seems like the sentiment surrounding AMD stock is very positive. Investors are very optimistic and willing to place a premium valuation on AMD stock on the com- before the company has delivered those soaring revenue and profit expectations that Wall Street is forecasting the company will achieve. Meanwhile, Micron, even though the share price has soared by such a large margin, it's still trading at a price that looks attractive at $990. It's well below the fair value I calculated at $1,510. So, it still looks undervalued despite the fact that the share price has soared by such a significant amount. So, if I were to pick between these two semiconductor companies, these two AI companies, if I were to pick between these two today, I would pick Micron Technology over AMD.