Micron stock is down 37% from its yearly highs and has been trading in a range for the last four months. A look at its fundamentals reveals a good upside that outweighs the risks associated with its downside: a perfect risk-reward ratio that investors should not ignore.
Micron Technology is a leader in the designing and manufacturing of advanced semiconductor memory and storage products like dynamic random-access memory (DRAM) and NAND flash memory. Its major patent portfolio and globally distributed manufacturing facilities make it a top semiconductor stock to invest in.
Its DRAM is widely used in computers, servers, and mobile devices, and facilitates high-speed data transfer rates with lower power consumption. On the other hand, Micron’s NAND flash memories can store data without power and are useful in smartphones and tablets.
The company also offers solid-state drives, designed for high-performance data centers and enterprise applications; and microSD and SD cards, used in smartphones, cameras, and drones.
Approximately 38% of Micron’s total revenue comes from the sale of memory solutions for data centers, PCs, and networking applications. Its mobile business unit contributes about 25% by supplying memory products for smartphones and other mobile devices. The rest of the revenue comes from the sale of SSDs and other storage solutions, and memory products for automotive, industrial, and consumer applications.
The United States is the major contributor to Micron’s revenue with 52% of total revenue, Taiwan is a distant second with 18%, followed by China with roughly 12%.
The company’s top clients include major technology companies and Original Equipment Manufacturers (OEMs) which produce parts and components for other companies. Among them are Apple, Dell, Lenovo, Microsoft, Samsung Electronics, Sony Corporation, NVIDIA, and Qualcomm.
Investors have been wondering what’s causing the stock to underperform the broader market. Is it the capex? Is it the global automotive market? Or is it the lack of clarity on the high R&D investment the company is making? Whatever the reasons, we believe the momentum could turn in the bulls’ favor at any time.
Wall Street expects aggressive top and bottom-line growth for Micron in the coming years. The EPS is expected to double in the next 3 quarters. The revenue is already on its way to recovery, about to reach the previous peak before China chip export bans came into place.
In fact, the estimate for FY25 revenue(next 4 quarters) stands at $38.2 billion, a whopping 24% higher than the previous peak of $30.8 billion. The company is not only on a recovery path but about to explode into aggressive growth as well.
Moreover, the company is doubling down on its R&D spending. In the last 12 months, it has spent $3.43 billion on research and development, which is considerably higher than what it normally spends. The reason for this is to benefit from the AI tailwinds and ride the trend as best as possible. Having said that, the market isn’t giving this great value, especially with the PE contraction the stock is currently experiencing.
I believe the R&D spending, revenue tailwinds, and a recovering global automotive market thanks to monetary easing are three good reasons to take a position in the stock. These three factors are likely to outweigh the risks associated with the stock, making it a great risk-reward proposition for investors.
Amazon ranks 14th on our latest list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 120 hedge fund portfolios held MU at the end of the second quarter which was 115 in the previous quarter. While we acknowledge the potential of MU as a leading AI investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as MU but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.
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