Micron Technology (MU) shares have fallen nearly 41% from their newly formed all-time high of $153 per share in June. The stock is currently trading at $91 per share and the market is wondering if the recent dip is alarming or if it has created an attractive entry point. That is the question I will answer in this article.
To understand the potential impact of this downturn, it’s important to first consider Micron’s position 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 has a significant presence in the industry. The $100 billion memory chip giant holds about a 26% market share in the DRAM space, according to data from TrendForceThis leadership in memory technology demonstrates the potential for future growth.
Given Micron’s leading position, the recent dip can 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, which puts it in third place behind two Korean DRAM makers: Samsung (39.6% market share) and SK Hynix (30.1% market share). Micron has the potential to increase its market share as it ramps up production of its cutting-edge tech nodes in both DRAM and NAND products. These are the products that power today’s most complex AI-enabled smartphones and PCs.
Additionally, Micron exceeded the high end of its guidance for sales, net income and gross margins in the fiscal third quarter of 2024. Demand for Micron’s products was low last year due to oversupply, but now that issue has been resolved and is improving further. The company’s sales grew nearly 82% to $6.81 billion during the quarter, as high demand for its products allowed the company to charge a premium to its customers.
Additionally, Micron is benefiting greatly from AI, as its DRAM and NAND products are used in everything from smartphones to power-hungry data centers. The company saw revenue grow 50% on a sequential basis, all thanks to favorable AI demand trends for its memory products.
Micron is well positioned to rise
Looking ahead, I remain bullish on Micron due to several external factors that could propel it to new heights, with AI playing a key role. Micron’s products are increasingly popular among data center customers, and management expects data center revenues to reach record levels in FY2024 and continue to grow in 2025. Micron expects its pricing power to increase, leading to higher gross margins, which were recorded at 28% in FQ3 2024.
Additionally, Micron’s data center business is expected to offset any short-term weakness in the PC and smartphone markets. While those markets are also expected to grow, I see Micron’s AI business emerging as a dominant driver of its revenue and earnings in the coming quarters. Management has indicated that it will focus more on high-margin AI-related products. Decreasing costs and improved pricing power from a favorable supply-demand mix are a recipe for increasing profitability.
Additionally, Micron is expected to benefit greatly from government incentives. The U.S. government is trying to bolster its domestic chip manufacturing capabilities and is therefore providing companies like Micron with hefty subsidies. The company recently won $6.1 billion in grants under the CHIPS and Science Act, which will help fund its manufacturing expansions in Idaho and New York. Management is aiming to achieve cost savings in manufacturing once the facilities are scaled up.
Micron is now ridiculously cheap
Finally, I like the discount that Micron is offering investors right now. The stock is trading like a company that has no near-term growth prospects, and I’m sure you realize that it has plenty. Micron stock is trading at ~10.59 times forward earnings, almost a 50% discount to the industry average of 23.5. For a company that is expected to grow earnings by 127% this year, that’s extremely cheap.
Analyst Opinion on Micron Shares
On the Street, Micron stock has 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, but the Street high of $225 represents a 147% rise.
View more MU analyst ratings
The heart of the matter
In summary, I expect Micron’s leadership in memory chips, combined with its ability to charge a premium to AI customers, to boost the company’s profitability over the long term. As the U.S. government works to bring chip manufacturing to the mainland, the stock is benefiting from several tailwinds that could help it reach new heights.
Therefore, Micron is a high-quality and profitable company at the cutting edge of technology, and it is currently for sale. My recommendation for the stock is a Strong Buy, which is in line with the consensus of 25 Wall Street analysts.
Revelation
