The company’s sales are soaring thanks to the AI boom.
The artificial intelligence (AI) market has exploded over the past year, and some of the companies benefiting from this growth are Micron Technology (MU -3.81%)The company’s sales are soaring because AI systems require huge amounts of computer memory and storage — exactly what Micron excels at.
This has led to a phenomenal rise in the company’s stock price: Last July, Micron’s stock price hit a 52-week low of $60.50. A year later, the stock price has more than doubled, hitting a peak of $157.54 in June.
However, Micron’s stock price plummeted after the company released its third-quarter earnings report, which ended May 30. Is this an opportunity to buy shares, or does the drop in stock price suggest a reason to avoid investing in Micron?
Let’s take a look at Micron’s performance to answer these questions and determine whether the company is a worthwhile investment in the long term.
Micron’s Financial Performance
Micron’s stock price fell after the earnings report because Wall Street was not impressed with the company’s fourth-quarter financial guidance. The company expects fourth-quarter revenue of about $7.6 billion, up 90% from $4 billion in the same period last year.
To understand this guidance, let’s look at how Micron’s revenues trended in fiscal 2024.
| Fiscal Quarter | Revenue | Year-on-year change |
|---|---|---|
| Q4 2024 | $7.6 billion (company estimate) | 90% |
| Q3 2024 | $6.8 billion | 82% |
| Q2 2024 | $5.8 billion | 58% |
| Q1 2024 | $4.7 billion | 16% |
Data source: Micron Technology. YOY = year-over-year change.
As you can see, Micron’s revenue has grown every quarter this fiscal year, thanks to customer demand generated by the emergence of AI. And, taking a closer look at Micron’s third quarter, performance was strong across multiple financial metrics.
The company’s third-quarter free cash flow (FCF) was $425 million, a sharp reversal from last year’s negative FCF of $1.4 billion.
Additionally, Micron ended the third quarter with a strong balance sheet. Total assets were $66.3 billion, including $7.6 billion in cash and cash equivalents. Total liabilities were $22.0 billion.
Micron’s Current Demand Environment
Overall, Micron had a strong third quarter and should see continued revenue growth momentum due to the growth of the AI market, which is projected to grow from $136 billion in 2023 to $827 billion by 2030.
Micron is gaining share in this market: In fact, Micron executives said the high-bandwidth memory chips AI needs to crunch data and perform complex calculations are already sold out for this year and through 2025.
The strong demand environment led Micron to raise prices, which helped the company’s gross margins increase from 19% in the second quarter to 27% in the third quarter. Micron expects gross margins to increase further in the fourth quarter, to about 34%.
Driven by demand for the company’s products and rapid growth in the AI market, Micron CFO Mark Murphy said the company “expects to achieve record revenue and significantly improved profitability in fiscal year 2025.”
Should I buy or not buy Micron stock?
Micron is doing well right now, but when evaluating it as a long-term investment, it’s important to remember that it operates in a cyclical industry, meaning that even though AI is driving growth today, Micron will eventually face an industry downturn.
For example, second-quarter fiscal 2023 revenue fell more than 50% to $3.7 billion from $7.8 billion in the prior fiscal year. At the time, CEO Sanjay Mehrotra explained that “the semiconductor memory and storage industry is facing its worst downturn in the last 13 years.”
Now, with the company’s fortunes reversing and the AI market in its early stages of expansion, Micron is well positioned to continue growing revenue.
Given this growth, Mehrotra declared that “Micron will be one of the biggest beneficiaries in the semiconductor industry from the multi-year growth opportunity that AI brings.”
Although Wall Street was disappointed with Micron’s fourth-quarter outlook, the current consensus among Wall Street analysts is a buy recommendation with a median price of $165 for Micron’s stock, suggesting confidence that the stock price will rise.
Given that AI has been a driver of Micron’s revenue growth for several years, and that the stock price has fallen since its recent earnings report, now may be a good time to buy Micron stock and hold for the long term as the AI market expands.
