Is MU a great "buy on the dip" opportunity？
With the Fed cutting interest rates and the stock market rebounding, many investors are wondering: is there still a chance to buy stocks without paying a premium? Absolutely, but it involves finding recent underperformers and having the patience for a long-term rebound.
$Micron Technology(MU)$ presents a great "buy on the dip" opportunity. After the initial excitement around AI and chip stocks faded this year, Micron’s stock has dropped about 40% from its peak of over $150 (although it's still up around 10% year-to-date). Given the strong industry fundamentals and attractive valuation, this stock has a solid chance to bounce back.
The company will report earnings on September 25, which could serve as a strong catalyst for that rebound.
Why Now is the Right Time to Buy Micron？There are two key reasons:
1. Strong Signals from Industry Peers: Micron's earnings report comes later in the earnings season, meaning we've already seen results from many related companies that could signal positive surprises for Micron.
2. Undervalued in a High-Valuation Market: AI applications are driving a multi-year investment cycle in chips and hardware, positioning Micron favorably for long-term profit growth, unlike the typical boom-and-bust cycles of the chip industry. In a market where the S&P 500 is trading at such high multiples, Micron stands out as a surprising value buy.
Investors should stay long and buy on dips.
Micron’s Valuation
Moreover, Micron looks quite cheap following its recent decline. Its forward P/E ratio is 10, based on Wall Street's estimate of $9.15 in earnings per share for fiscal year 2025.
The stock trades slightly above Western Digital, but investors should note that Western Digital faces uncertainty with its upcoming spin-off of its flash memory division, while Micron is growing at a much faster pace.
Compared to the $S&P 500(.SPX)$ ’s approximately 20 P/E ratio, Micron's valuation is more appealing. Historically, Micron’s P/E has fluctuated between low single digits and high multiples. Betting on Micron means betting on AI driving a long-term investment cycle in memory and hardware, which should insulate the stock from past boom-and-bust years.
Risks and Key Points
Micron has a solid opportunity to recover recent losses in its upcoming Q4 earnings report, especially since data from other companies indicates that memory pricing remains high and demand for computers, phones, and tablets is still strong.
Of course, there are many risks that could affect the bullish outlook. Historically, the memory market is very volatile; the high prices we see now may be due to customers stocking up to avoid supply shortages, similar to the early days of the pandemic. Once these stockpiled orders are fulfilled, prices may weaken, threatening Micron’s sales, margins, and earnings.
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