If I Had $1,000 to Invest, Here's the Tech Stock I'd Invest in Before Micron

Over the past 12 months, Micron Technology (NASDAQ: MU) has been one of the hottest stocks in the stock market. It's up around 680% in that span, far outperforming every major U.S. index and all the "Magnificent Seven" stocks as of July 13. It's currently valued at around $1.05 trillion (the 15th most valuable public company in the world), but at its peak, its valuation reached $1.37 trillion.

Despite Micron's current momentum (up 193% this year), there's another popular tech stock that I'd invest in before Micron, even though Micron's returns are more than 28 times higher over the past year: Nvidia (NASDAQ: NVDA). It's been a "down" year for Nvidia so far -- it's only up 8% year to date -- but I like its long-term appeal more than Micron's right now.

Image source: The Motley Fool.

What Micron has working in its favor

Micron is a memory and storage chip company that has found itself in the right place at the right time. As major AI hyperscalers -- such as Amazon, Microsoft, and Alphabet -- have spent (and plan to continue spending) billions building out data centers, companies that make the hardware that populates those data centers have seen surges in demand.

One key piece of hardware is the memory chips that Micron makes. Unfortunately for the AI hyperscalers, the sudden increase in demand has far outweighed the current supply of these chips. Fortunately for Micron, the supply-demand imbalance has allowed it to jack up prices and noticeably increase its profitability and margins.

In its most recent quarter (ended May 28), Micron's revenue increased 346% year over year to $41.5 billion, and its net income increased 1,398% to $28.2 billion.

What Nvidia has working in its favor

Nvidia's graphics processing units (GPUs) are the go-to chips in the AI world. These units, and its software system, are why Nvidia is crucial to the AI ecosystem. It's also why its valuation has soared over the past few years, and it now sits as the world's most valuable public company, with a market cap of over $4.9 trillion.

Since the current AI infrastructure build-out began, Nvidia has had a virtual monopoly on AI accelerator chips, and it has transformed its business. In its latest quarter (ended April 26), Nvidia made $81.6 billion in revenue, up 85% from the same quarter last year. Of that $81.6 billion, $75.2 billion (92%) came from its data center segment.

Data center hardware and software are now Nvidia's bread and butter, but it still has a presence in gaming and robotics that keeps it somewhat diversified.

Why I would go with Nvidia over Micron

Although Micron is undoubtedly the hotter stock right now, it's important to remember just how cyclical the memory hardware industry can be. The industry is riding high right now because of supply-demand imbalances, but that won't always be the case. Micron alone is spending around $27 billion this year to build out new facilities to ramp up production.

Once supply inevitably catches up to demand -- especially as competitors like SK Hynix and Samsung Electronic also ramp up supply -- Micron is likely to see its pricing power significantly reduced.

Nvidia's business isn't foolproof by any means. Major companies like Amazon, Microsoft, and Alphabet are beginning to develop their own advanced AI chips to reduce their dependence on Nvidia, but Nvidia is much more than just its chips. It has managed to build a full-stack ecosystem that includes software that developers have grown accustomed to. Jumping ship from Nvidia's ecosystem isn't easy or cheap.

With a valuation near $5 trillion, it would be much tougher for Nvidia to double in value than it would be for Micron, but I believe Micron has a much higher chance of a correction than Nvidia does. My preference for Nvidia has just as much to do with its long-term trajectory as it does with limiting potential downside.

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