It’s no secret that semiconductor chips have been witnessing outsized demand over the last couple of years. As corporations continue figuring out how artificial intelligence (AI) can bring a new wave of efficiency to the workplace, chips will remain a critical piece of infrastructure.

Within the chip realm, Nvidia sits atop the throne thanks to its best-in-breed graphics processing units (GPUs). Nevertheless, I’ve been expressing some concerns over Nvidia’s position as the de facto leader in the chip game, as many other companies — some of which are Nvidia’s own customers — are seeking to bring their own line of GPUs to market.

In my opinion, Micron Technology (MU -1.41%) has a chance of emerging as the most important company in the chip arena in the long run. Below, I’ll break down Micron’s unique position in the semiconductor landscape and explore why I think now is a great opportunity to buy the stock hand over fist.

What is Micron’s role in the chip space?

While you may be familiar with Micron as a leading chip enterprise, I wouldn’t be surprised if you don’t know what the company actually does.

Semiconductors have myriad applications, and many players in the chip space have unique roles within the broader industry opportunity. To put it simply, Micron specializes in memory and storage solutions.

Memory is a critical component of chip architecture, especially as it relates to generative AI development and data center infrastructure.

Image source: Getty Images.

Why is memory important for AI?

Memory chips help with storage and data management across hardware devices, such as personal computers or server racks. When it comes to developing AI, training models require the ability to process large datasets and complex algorithms in a time-efficient manner. This is where Micron comes into play, as the company’s products help transfer data between memory and processing functionality.

Let’s look at a couple of examples of how demand for chip memory solutions should rise in the coming years.

For starters, big tech is expected to invest $1 trillion in IT infrastructure over the next few years, according to Wedbush Securities analyst Dan Ives. One area that I suspect will continue to see robust investment activity is the development of large language models (LLMs).

Training these models and building out more features will require a continuous data feed that needs to be processed and analyzed quickly. Micron’s memory and storage expertise will surely come in handy here.

Another catalyst for Micron could be the potential of an upcoming computer refresh cycle. Companies that build laptops and computers for large enterprises have been hard at work integrating new AI-powered solutions in these devices for the last couple of years.

I think many businesses are going to opt to upgrade their computing devices as IT budgets allocate more capital focused on AI infrastructure — making the refresh cycle a potential tailwind for Micron.

Is Micron stock a buy right now?

So far in 2024, shares of Micron have gained roughly 25% — narrowly outperforming both the S&P 500 and Nasdaq Composite as of the time of this article. While this could suggest that Micron stock has some momentum fueling it, my Foolish colleague Anders Bylund recently made a really astute observation regarding Micron’s valuation and forward outlook.

One good metric to look at when valuing a stock is the forward price to earnings (P/E) ratio because it provides a glimpse into what a company’s future earnings potential could look like.

The chart below illustrates Micron’s forward P/E ratio benchmarked against a broad set of semiconductor industry cohorts.

MU PE Ratio (Forward) data by YCharts

Notice anything? Micron’s forward P/E is by far the lowest among this peer set. What’s more, the company’s valuation multiples completely cratered following a not-so-stellar research report published by Morgan Stanley recently, combined with the fact that Micron’s profitability profile remains somewhat inconsistent.

To me, investing in growth stocks requires some degree of accommodation when it comes to cash burn. I would not discount the importance that memory solutions should play in the chip industry as well as the overall AI narrative.

In my opinion, the market is underestimating how much of a bellwether rising spending among data centers, IT infrastructure, storage solutions, and generative AI could be for Micron. I see Micron as a compelling buying opportunity right now and think the company is in a lucrative position for the long run.