Time to get On / Off - Micron Express Train?
Sharing this post on Motley Fool by Anders Bylund dated 10 Apr 2024, titled “Is It Too Late to Buy Micron Technology Stock?“
It is a quick to read, digest and overall salient article. Nice !
For my regulars, this is a follow up to my 25 Mar 2024 post “Micron: Buy the Chip or Miss the Dip ? “ (click title to read !).
Memory chip maker $Micron Technology(MU)$ has a hot hand right now.
The stock is trading near all-time highs, having gained +45% YTD and +105.79% in the last 52 weeks. (see above)
Current artificial intelligence (AI) boom poured nitro on Micron's growth fires, boosting this stock chart into the stratosphere.
AI systems’ Requirements.
Modern AI systems use a ton of memory and solid-state storage.
As a leading supplier of those chips, that's good news for Micron and its shareholders.
Longtime shareholders can celebrate some game-changing long-term returns.
Micron has more than doubled the $S&P 500(.SPX)$ gains over the last decade.
Good time to buy Micron?
To answer the question, how much room is there for further Micron gains, at this point?
Actually, there's plenty of demand for Micron's products.
Training and operating advanced AI systems requires:
Heavy number-crunching.
Calls for enormous amounts of short-term DRAM chips.
At the same time, the same systems also need lots of long-term storage with fast read and write performance.
The only reasonable choice for this requirement is NAND chips, also known as flash memory or solid-state devices (SSDs).
Micron is not just:
A leading maker of memory chips.
But also, an innovator in the space with a performance advantage at the moment.
The unchallenged performance per watt of power consumption makes Micron's latest and greatest high bandwidth memory (HBM) solution, attractive to builders of very large systems.
Fact remains that when $NVIDIA Corp(NVDA)$ picked this memory type as the standard built-in DRAM in its next-generation AI accelerators, Micron’s future looks a lot brighter and assured suddenly.
Now we know why Micron is suddenly everyone’s focus as well?
Product’s price.
Unit prices for NAND chips have been stable in 2024 while the average spot price for mass-market DRAM chips is up by +11% YTD.
On top of that solid base, sector leader $Samsung Electronics Co., Ltd.(SSNLF)$ expects to boost NAND chip prices by +20% over the next quarter.
Micron's technology advantage should allow it to raise prices even faster.
As such, Micron's growth prospects look stellar in the near term and it is not expected to change much over the next few years.
Samsung and friends may catch up to Micron's HBM advantage over time, but that will be a long-term challenge.
Is Micron's stock fairly valued?
When it comes to “valuation”, this is where things get uncomfortable.
At the moment, every market trend points in a bullish direction.
Unfortunately, the memory industry bounced off the bottom of a brutal downtrend very recently.
As a result, Micron's trailing sales are down -43% from the Summer of 2022.
It’s free cash flows (FCF) are deeply negative as well. (see below)
Profit-based valuation metrics do not make sense when earnings and cash flows are negative.
And the price-to-sales ratio stands at levels not seen since the dot-com bubble.
Final verdict.
Writer Andes Bylund has been a longtime Micron shareholder.
And he is not surprised overall by the cyclical nature of the memory industry; neither should anyone, anymore.
Micron’s radical upswing in March 2024, is unlike the others.
Micron's stock price only seems reasonable if big changes happen throughout the entire memory chip industry.
Meaning, for Micron's price to be justified, two things need to happen:
Micron has to stay ahead of the competition in technology for a long time.
Demand for high-quality memory chips has to shoot way up.
From the look of things, above pre-requisites seemed unattainable, even for Anders.
So, he is seriously thinking about taking some Micron profits off the table to (a) re-invest in lower-priced growth stocks or (b) a stable index-tracking exchange-traded fund (ETF).
This is writer’s thinking aloud.
Of course, everyone’s risk or profit appetite varies.
Truth be told, Micron might have some more rocket fuel in the tank to propel higher.
It is only when one sells the stock/s, only then is it “realized” profits.
Otherwise it remains as “paper gain” that could be wiped out in a jiffy.
My viewpoints: (mine & mine only)
When it comes to buying Micron stocks, writer has been rather “diplomatic” in his reply.
However, it is pretty clear from his intended decisions, now is not a good time to board the Micron express.
In fact, depending on one’s comfort or should I say “greed” level, it is almost time to get off Micron express.
The US economy just got new inflation reports (CPI on Wednesday & PPI on Thursday).
As market is still analyzing and digesting the data, it is best to wait a bit before making any big decision, lest its hasty.
Knowing the market’s direction in the short term will help an investor decide whether to get off immediately or wait a wee longer, before jumping to safety.
You do know that it is a decision - no right or wrong to it, right?
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Have to love MU , Thurs up $ 5-00 , Fri down $ 5.00 Mon back up $ 5.00 , It's time to buy back again.
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Definitely time to be off now
Great article, would you like to share it?
Great article, would you like to share it?
Great article, would you like to share it?