Are Memory Specialists a Better Way to Play the AI Boom Than AI Chipmakers? | The Motley Fool

Memory companies should continue to outperform AI chipmakers for the next few years. As the artificial intelligence (AI) space continues to evolve rapidly, some investors are looking for better opportunities than Nvidia (NVDA 1.11%) and Broadcom (AVGO 4.42%). Those megacap AI chipmakers developed some of the foundational hardware upon which AI software depends, and their data center sales have already been hugely beneficial to their bottom lines, and to their shareholders. However, the AI processing platforms they make include a bunch of smaller components, many of which they acquire from other tech specialists. For instance, you will find multiple memory chips in every single AI chip. Most investors were still ignoring this opportunity a couple of years ago, but recognition of it has gone mainstream. And as demand for high-end memory has surged well past manufacturers' ability to supply, earnings for leaders in the space, such as Sandisk (SNDK 11.24%), have surged. That memory stock has gained roughly 4,000% in a single year. If you had put $25,000 into Sandisk one year ago, you would have a position worth just over $1 million today. AI processing chip companies are still solid picks for your portfolio, but with memory chipmakers reporting higher one-year gains, it's natural for investors to consider putting some money into some of them, too. The opportunity in AI chipmakers is well documented at this point. Nvidia was the first big name to capitalize on the AI trend due to its powerful graphics processing units (GPUs), which can handle all sorts of parallel-processing workloads. Then, Broadcom gained attention for its application-specific integrated circuits (ASICs). The company works directly with individual hyperscaler customers to design custom chips that are optimized for the precise types of workloads they will encounter, so they can handle those AI workloads more efficiently and cheaply than Nvidia's general-purpose processors. Nvidia and Broadcom are now both multitrillion-dollar companies. So some investors looking for growth stocks have gravitated toward "smaller" AI chipmakers like AMD and Marvell Technology, but AMD looks poised to become a trillion-dollar company within the next one to two years. For awhile, investors didn't have much incentive to look closely at memory stocks. Micron (MU 10.40%) only produced a 14% return from 2021 to 2024, and that total return came with significant volatility. Memory specialist Western Digital (WDC 9.37%) -- which until 2025 owned what is now Sandisk, and is now focused on hard drives -- didn't even muster a 10% return over those four years. But with demand for memory companies' wares surging, investors are now paying attention. Micron and Western Digital have both more than doubled year to date, suddenly casting a bright spotlight on memory stocks. Sandisk, the biggest winner of 2026, is up by more than 400% year to date. Naturally, most of the attention is going toward big winners like Micron and Sandisk. Fewer people are looking at the underlying technology -- NAND, DRAM, and HBM -- and searching for smaller companies that are also involved with that technology. For instance, consider a company like Silicon Motion Technology (SIMO 5.94%), which produces NAND flash controller chips, a crucial part of the memory trade. It doubled its sales year over year in the first quarter, reached a net profit margin of almost 20%, and still has a market cap under $10 billion. Management's guidance points toward meaningful growth in future quarters. Good luck finding a small AI chipmaker with numbers like those that investors haven't already steeply bid up in price. It's not an exaggeration to say the digital memory segment offers a second chance for investors who missed out on the rise of AI chip stocks. Nvidia and Micron are the leaders of their respective industries. Nvidia's earnings still show strong growth, while Micron's parabolic growth resembles what Nvidia was doing a few years ago. Let's start with Nvidia, which delivered 73% year-over-year revenue growth in the 2026 fourth quarter (which ended on Jan. 25, 2026). It also produced 20% sequential sales growth, and management offered bullish views about its backlog. In its report for its fiscal 2026 second quarter (which ended Feb. 26), the outlook Micron provided also offered a bullish view of its future earnings. And its growth rates are blowing Nvidia's away. Sales almost tripled year over year, and net income surged by 771%. Micron also delivered 75% sequential revenue growth. Such comparisons apply across the board in the memory niche. Sandisk is growing much faster than Broadcom, and you can say the same thing about Western Digital versus AMD. For Nvidia, we have to go back to its fiscal 2024 (which ended on Jan. 28, 2024) to find a time when the company more than doubled its revenues annually. In that fiscal year's Q4, it generated 265% year-over-year top-line growth in a single quarter. Nvidia was trading at roughly $60 back then, on a split-adjusted basis, and has almost quadrupled since then. Given the momentum in the memory sector, the strong guidance that these companies are offering, and the way memory stocks are mirroring what AI chipmakers did a few years ago, it looks like they are still in the early innings of their AI-driven uptrend.