Forget Nvidia (NVDA) — Check Out This Stock Instead

I’ll be the first to admit that Nvidia (NASDAQ: NVDA) has had a fantastic run. 

But it’s no longer as simple as “buy NVDA, line go up.”

As impressive as the chipmaking titan’s run has been, the average upside projected by Wall Street analysts for the next 12 months stands at 15.15% — and while that’s doubtlessly decent, it’s a far cry from the stunning returns the market has come to expect from the AI cornerstone.

Our quant rating system, Zen Ratings, takes an even more dim view of NVDA. At present, it ranks in the 53rd percentile of the 4,600 stocks that we track based on a big-picture analysis of 115 proprietary factors. In other words, 47% of equities rank higher.

This gives Nvidia stock a Zen Rating of C — historically, this has corresponded to average annualized returns of 7.53%. Not terrible — but far from great.

To leave it at that would be an oversimplification — but it’s increasingly clear that investors in search of alpha will likely fare better by going long on less crowded names. The semiconductor industry is uniquely positioned for growth — so the most logical place to look is in NVDA’s peers and competitors.

There are 65 stocks in the Semiconductor industry — and Nvidia is ranked 34th. 

So what other semiconductor players are savvy investors following?

Micron (NASDAQ: MU), on the other hand, is ranked 4th, and stands apart from other stocks with a high rating by virtue of its large market cap.

MU shares rank in the 92nd percentile according to our system, which gives them a Zen Rating of B, which corresponds to average annualized returns of 19.88%.

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In addition, the average upside for Micron stock, per current analyst coverage, stands at 29.05% — which significantly outclasses NVDA.

This positions MU as a good candidate for getting exposure to the semiconductor boom — but we’ll have to take a look at the stocks’ respective Component Grade ratings for a more accurate account of their advantages and disadvantages.

Let’s start with NVDA’s strongest rating — Financials. It has the edge in this category, as it ranks in the top 1% of stocks — but Micron is no slouch here either, as it ranks in the 80th percentile.

However, with the analyst projections we’ve mentioned, it won’t come as much of a surprise that MU, which ranks in the top 14% of stocks, outclasses Nvidia, which ranks in the lowly 27th percentile, when it comes to Sentiment. 

In addition, the smart money crowd seems to be more bullish on Micron — some 76.78% of the company’s stock is held by institutional investors, compared to Nvidia’s 63.72%.

Unsurprisingly, the biggest difference is valuation. At a price-to-earnings (P/E) of 50.08x and a price-to-earnings growth (PEG) of 1.84x, NVDA is quite expensive at the moment, and ranks in the 63rd percentile of equities when it comes to Value. 

In contrast, MU is currently trading at a P/E of 21.78x, below the wider market average of 31.27x, and a PEG of just 0.53x, indicating that it is severely undervalued. When it comes to this Component Grade rating, Micron shares rank in the top 6% of stocks.

Lastly, we have our Artificial Intelligence rating, which leverages a neural network trained on more than two decades of technical and fundamental data. It ranks NVDA in the 48th percentile, while MU falls in the 79th percentile.

Let me be clear — I am not suggesting that Nvidia is headed for a correction. However, it would appear as if continued outperformance will be required for the stock to keep trading at its present valuation. If you’re in the green on the stock, now isn’t a bad time to lock in at least some of your gains and trim your position.

On the other hand, at current prices, MU offers a cheap way to gain exposure to semiconductors, particularly relative to expected growth, without taking on nearly as much of a risk. With macro conditions still defined by uncertainty and teetering toward being unfavorable, MU is simply the better play for conservative, long-term investors.

—> Click here to research MU and NVDA. You might also want to check out our list of the highest-rated Semiconductor stocks 

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