The Most Undervalued Chip Stock to Own in 2026

Demand for more chips and other components in data centers has created tremendous opportunities for leading semiconductor companies. There is growing demand for advanced chips, but not all chip stocks are being valued the same.

There is significant mispricing among some of the industry leaders. Investors are paying higher price-to-earnings (P/E) ratios for consistent performers like Nvidia, but lower earnings multiples for Micron Technology (NASDAQ: MU) -- even though Micron is growing earnings much faster right now.

While Micron's lower valuation reflects the cyclical nature of the memory market, a shortage of memory for artificial intelligence (AI) chips is creating a massive upswing for Micron's growth. This upswing could last longer than investors expect, fueling more upside in Micron shares.

Image source: Micron Technology.

Relative valuation to industry peers

Investors might be fearful of buying at the top, given the stock's parabolic rise in the last six months. But Micron shares offer an attractive valuation, trading at just 11 times forward earnings estimates. This is lower than Nvidia's forward P/E of 24 and Advanced Micro Devices' forward multiple of 35.

Moreover, Wall Street analysts project Micron's earnings to grow at a 50% annualized rate over the next few years, higher than AMD's 45% and Nvidia's 36%. Micron may offer more growth at a better price. The question is how sustainable the current demand for advanced memory products is.

Micron offers a favorable risk-reward trade-off

Wall Street expects Micron's earnings to surge 294% this year to $32.67 per share, then rise another 27% next year to $41.54 per share. The rebound is being fueled by higher memory prices, driven by demand for data center graphics processing units (GPUs), where Micron is a supplier to Nvidia.

Those estimates are based on the momentum already showing up in results. Revenue jumped 57% year over year last quarter, and earnings rose 175%. Management said in the previous earnings call that customers have already spoken for all of its high-bandwidth memory expected to be available in 2026.

What's more, a recent report from the International Data Corp. (IDC) indicates that the memory shortage could extend into 2027. One catalyst for this scenario is Nvidia's upcoming Rubin chips, which offer higher memory bandwidth to handle advanced AI workloads. This suggests that every new generation of Nvidia chips could benefit Micron, as they feature a step-up in memory bandwidth to handle future AI workloads.

The risk investors will need to watch is oversupply. If memory supply catches up with demand, it could lead to excess inventory, driving down memory prices and pressuring Micron's earnings. But based on management's comments about customer commitments and the strength of demand for Nvidia's data center chips, this risk appears limited for the foreseeable future.

All said, the stock's low valuation relative to earnings may leave room for more upside in 2026 -- and, potentially, the next few years.

John Ballard has positions in Advanced Micro Devices and Nvidia. The Motley Fool has positions in and recommends Advanced Micro Devices, Micron Technology, and Nvidia. The Motley Fool has a disclosure policy.