Micron’s topline is based on sales generated by its core businesses of DRAM and NAND memory products primarily in the United States, China, and Taiwan. Advanced Micro Devices is more heavily diversified in gaming graphics processors and CPUs. However, the two businesses are similar in terms of margins.
With its gross margin of 23%, AMD is more similar to MU (with a gross margin of 26%) than to Nvidia (NASDAQ:NVDA) – another important graphics player that enjoys a gross margin of 58% – far above both AMD’s and MU’s gross margins, and the topline multiple of NVDA is not comparable to AMD or MU despite significant similarities in their businesses.
AMD and MU have sales multiples of 2.6x and 2.0x, respectively. This represents undervaluation in MU compared to AMD because MU has a higher gross profit margin on its sales (26% vs. 23%), and it also has better annual revenue growth over the last ten years.
On the bottom line, MU is also undervalued compared to AMD. And this is simply because AMD is unprofitable. While MU generated $894 million in net income for the most recent quarter, AMD generated a $51 million loss for the same period.
In terms of EBITDA, it is the same story. When depreciation, amortization, and other noncash charges are added back to the net incomes of both MU and AMD, MU generates $2.06 billion in EBITDA, while AMD still posts a loss of -$159 million.
Micron has a P/E ratio of 50, which is high compared to the market average of 25. And it has an EV/EBITDA of a little over 8. The company’s enterprise value is large due to its high amount of debt ($11.3 billion), but the company maintains a healthy cash position of $3.89 billion, so this isn’t too much of a problem.