Micron Technology (MU) stock has pulled back nearly 41% from its newly formed all-time-high of $153 per share in June. The stock is currently trading at $91 per share and the market is questioning whether the recent dip is alarming or if it has created an attractive entry point. That’s the question I will answer in this article.
To understand the potential impact of this pullback, it’s important to first consider Micron’s standing in the semiconductor industry. Micron is a major player in the semiconductor space, particularly in memory products. Known for manufacturing and distributing dynamic random-access memory (DRAM), flash memory, and USB flash drives, Micron holds a significant position in the industry. The $100-billion memory chip giant commands about a 26% market share in the DRAM sector, according to data from TrendForce. This leadership in memory technology showcases its potential for future growth.
Given its leadership position, the recent dip might be seen as a potential opportunity rather than a cause for concern. I am bullish on Micron and believe the recent dip has created a buying opportunity due to its industry-leading position, favorable external factors, and current valuation.
Micron Is a Leader in Memory Chips
Central to my bullish thesis for Micron is its position as a leader in memory chips. As previously mentioned, it has a 26% market share and ranks third after two Korean DRAM manufacturers: Samsung (39.6% market share) and SK Hynix (30.1% market share). Micron has the potential to grow its market share, considering it’s ramping up the production of its advanced tech nodes in both DRAM and NAND products. These are the products that are powering today’s most complex AI-enabled smartphones and PCs.
Moreover, Micron exceeded the high end of its guidance on sales, net income, and gross margins in the Fiscal third quarter of 2024. The demand for Micron’s products was low last year due to an oversupply, but now that problem is sorted and further improving. The company’s sales grew by nearly 82% to $6.81 billion during the quarter as high demand for its products allowed it to charge a premium to its customers.
Additionally, Micron is benefiting a lot from AI because its DRAM and NAND products are used in everything from smartphones to power-hungry data centers. The company grew its sales by 50% on a sequential basis, all thanks to favorable AI demand trends for its memory products.
Micron Is Well-Positioned to Soar
Looking ahead, I remain optimistic about Micron due to several external factors that could drive it to new highs, with AI being a major contributor. Micron’s products are increasingly popular among data center customers, and management anticipates data center revenue to reach record levels in Fiscal 2024 and continue growing in 2025. Micron expects its pricing power to strengthen, leading to higher gross margins, which were recorded at 28% in FQ3 2024.
In addition, Micron’s data center business is expected to offset any short-term weakness in the PCs and smartphones markets. Though these markets are expected to grow as well, I see Micron’s AI business taking over as a dominant driver of its top line and bottom line over the next several quarters. Management mentioned it will focus more on AI-related high-margin products. Falling costs and improving pricing power due to a favorable supply and demand mix are a recipe for increasing profitability.
Furthermore, Micron is expected to benefit immensely from government incentives. The U.S. government is trying to strengthen its domestic chip manufacturing capabilities and is therefore awarding companies like Micron with hefty grants. The company won $6.1 billion in grants recently under the CHIPS and Science Act, which will allow it to fund its manufacturing expansions in Idaho and New York. Management aims to achieve cost efficiencies in manufacturing once the facilities are scaled.
Micron Is Ridiculously Cheap Right Now
Finally, I like the discount Micron is offering to investors right now. The stock is trading like a business that has no growth prospects in the near term, and I’m sure you’ve realized that it has many. Micron stock is trading at ~ 10.59 times forward earnings, almost a 50% discount to its sector average of 23.5. For a business that’s expected to grow earnings by 127% this year, that’s extremely cheap.
Analysts’ Take on Micron Stock
On the Street, Micron Stock sports a consensus “Strong Buy” rating based on 25 Buy, 2 Hold, and 1 Sell recommendation. The average MU price target of $161 implies an upside of 76.50% from current levels, however, the Street-high of $225 represents an increase 147%.
The Bottom Line
In summary, I expect Micron’s industry-leading position in memory chips, coupled with its ability to charge a premium to AI customers, to drive long-term profitability for the business. As the U.S. government works to bring chip manufacturing onshore, the stock benefits from several tailwinds that could help it reach new highs.
Therefore, Micron is a high-quality and profitable business at the cutting edge of technology, and it’s currently on sale. My recommendation on the stock is a Strong Buy, which aligns with the consensus of 25 Wall Street analysts.
