memory chip manufacturers micron technology (MU -1.25%) I’m grooving today. The stock has more than doubled in 52 weeks, including a 27% increase in the last month alone.
It’s fun to see a perennially popular stock hit post-record stock prices and return to valuation ratios not seen since the height of the dot-com bubble, but will Micron stock maintain these high prices? ? Is Micron’s stock price surge based on solid ground or shifting sands?
Actually, I’m not sure.
Building blocks of the digital age
Micron is a leading manufacturer of memory chips. The product range ranges from the short-lived but fast DRAM used in all computing systems, to more persistent NAND chips (formerly known as flash), which form solid-state storage solutions with higher performance than traditional hard drives. (formerly known as chips) covers many common memory types. .
Currently, both DRAM chips and NAND chips are in high demand. Artificial intelligence (AI) systems require large amounts of high-speed DRAM capacity, as well as large amounts of speed-sensitive long-term storage. At the same time, smartphones, which have had little consumer interest, are starting to go on sale again for the first time in several years. Recent flagship models with special AI features can use twice as much DRAM as comparable devices without AI features.
Micron enjoys strong end market demand and stable revenue streams. And management expects the good times to continue for some time.
“We believe Micron is one of the largest beneficiaries in the semiconductor industry of the multi-year opportunities enabled by AI,” CEO Sanjay Mehrotra said in a prepared statement. .
As a result, shipment volumes are on the rise. At the same time, the semiconductor industry still faces supply-side shortages. It may sound like bad news, but the tight supply-demand balance will drive up unit prices for a limited number of supply-side memory chips. As a result, Micron’s revenue has skyrocketed even as unit sales have declined. For example, shipments of NAND products decreased slightly from the first quarter to the second quarter of fiscal 2024. But NAND’s revenue rose 27% anyway.
Overall, Micron’s DRAM sales increased 54% year-over-year and NAND sales increased 81% over the same period.
Don’t forget about long-term trends in the memory space
At the same time, Micron has not set any business records at the moment. The company operates in a highly cyclical industry, and the economic downturn that began with the inflation crisis may not be over yet.
Revenue for the past four quarters has peaked at $18.3 billion, a far cry from the $33.4 billion record set two years ago. Free cash flow also surged in 2022, but fell back into negative territory early last year. The company is burning cash at the moment, and it’s not like it’s stuffing cash profits into a lot of cash.
MU Revenue (TTM) Data by YCharts
In other words, Micron’s stock price is now soaring on somewhat flimsy wings. Bullish investors are hoping for years of success for AI-driven businesses, defying potential headwinds from an unpredictable global economy and a seemingly endless lack of semiconductor manufacturing capacity. .
For me, Micron has been a great source of long-term revenue. The stock he bought in the summer of 2011 is up 1,200% so far, after adjusting for dividends. S&P500 The index “only” rose by 400%.
I do not intend to add Micron stock at this time as the stock price correction may be delayed. The recent price hikes seem to have gone too far. It would make more sense to sell a few shares (but not close out the entire position) and move some of Micron’s profits to a lower-priced idea. My favorite holding period might be “forever,” but it’s okay to rebalance your limited investment funds from time to time.
Anders Bylund works at Micron Technology. The Motley Fool has no position in any stocks mentioned. The Motley Fool has a disclosure policy.
