Key Points

  • The strong memory demand and the ongoing supply shortage point toward red-hot earnings growth for both Micron and Sandisk.

  • Investors have an easy choice to make if they are looking to buy one of these two memory stocks right now.

  • 10 stocks we like better than Micron Technology ›

Micron Technology (NASDAQ: MU) and Sandisk (NASDAQ: SNDK) have recorded stunning gains on the stock market over the past year, primarily due to the favorable conditions in the memory market, where demand is substantially outpacing supply.

While Micron stock has jumped 728% during this period, Sandisk's gains are even more phenomenal at over 3,200%. However, both memory stocks have pulled back significantly. Shares of Micron are down by 24% over the past month, while Sandisk has taken a bigger hit by sliding 38%.

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However, the pullback in these stocks seems like a solid buying opportunity for investors. But if you had to choose one of these semiconductor stocks for your portfolio right now, which one should you be buying? Let's find out.

Sandisk and Micron's incredible growth is sustainable

Sandisk and Micron's earnings and revenue have increased at an exponential pace in recent quarters. This is primarily due to the artificial intelligence (AI)-fueled demand for memory chips in data centers. Morgan Stanley notes that memory chip prices have jumped by 6x over the past year, as demand has significantly exceeded supply.

The investment bank also points out that the memory supply crunch won't ease anytime soon despite new capacity additions. Memory manufacturer SK Hynix corroborated Morgan Stanley's concerns earlier this month, pointing out that memory demand will outstrip supply beyond 2030. So, it won't be surprising to see the strong pricing environment that's supporting Sandisk and Micron's remarkable growth continuing.

Even better, both companies are setting themselves up for durable long-term growth, as evidenced by the long-term agreements they are signing with customers. Micron, for instance, noted on the Juneearnings callthat it has signed 16 strategic customer agreements (SCAs), which have significantly increased its remaining performance obligations (RPO).

Specifically, Micron had $5 billion in RPO at the end of fiscal Q3, which ended in May. However, its RPO ballooned to $100 billion by the end of June, as customers scrambled to secure long-term memory supply. That number is likely to have increased further this month, as the company recently announced that it has signed SCAs with multiple companies serving the automotive industry.

RPO refers to the total value of contracts a company has to fulfill at the end of a period. So, Micron's improving revenue pipeline should allow the company to sustain its red-hot growth momentum and exceed analysts' expectations over the long run.

Similarly, Sandisk is also entering into multi-year supply agreements with customers as a part of its new business model. It signed five such agreements in the first four months of the year. Three of those agreements were worth a minimum revenue commitment of $42 billion, while it didn't disclose the value of the other two deals.

These agreements could significantly lift Sandisk's growth over the long run, considering that it has generated $13.2 billion in revenue over the past year. Not surprisingly, even Sandisk's revenue is projected to jump substantially from the recently concluded fiscal year's level of $19.8 billion.

Should you buy Sandisk or Micron, or both?

The strong top-line growth that Sandisk and Micron are poised to deliver should ideally translate into robust bottom-line growth as well, as the supply crunch should ensure prices remain favorable for both companies. Not surprisingly, analysts are forecasting a significant uptick in their earnings over the long run.

What's worth noting is that both these semiconductor stocks have really attractive forward earnings multiples.

The S&P 500 index, for some perspective, has a forward earnings multiple of 21.5. So, both are value stocks, as their forward price-to-earnings ratios are below the S&P 500's despite their red-hot growth potential.

So, you can't go wrong with either Sandisk or Micron, as both AI stocks are capable of delivering significant long-term upside thanks to favorable memory market dynamics.

Should you buy stock in Micron Technology right now?

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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Micron Technology. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.