Home Market News The Micron Momentum: A Memory Chip Marvel or Mirage?

The Micron Momentum: A Memory Chip Marvel or Mirage?

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The Micron Momentum: A Memory Chip Marvel or Mirage?

The beat of Micron Technology (NASDAQ: MU) is quite the groove these days. With the stock doubling in 52 weeks, including a recent 27% burst, investors are riding high on the memory chip maker’s wave.

As we gaze upon Micron’s ascent to record share prices and resurgence in valuation ratios reminiscent of the dot-com era, the question looms large—will this euphoria last? Is the current surge in Micron’s stock a sturdy edifice or merely a shimmering oasis in the desert sand?

Foundation of the Digital Era

Micron stands tall as a premier producer of memory chips, offering a diverse range of memory types. From swift but fleeting DRAM chips essential in every computing device to the enduring NAND chips (once known as flash chips) that form the core of high-performance solid-state storage options surpassing traditional hard drives.

The current landscape is ripe for both DRAM and NAND chips. With the surge in AI technology demanding extensive high-speed DRAM capacity and lightning-fast long-term storage solutions. Concurrently, the rebound in smartphone sales, especially models integrating advanced AI functionalities, is propelling the need for double the DRAM capacity compared to non-AI counterparts.

Buoyed by robust end-market demand and healthy revenue streams, Micron is primed for a continued winning streak. CEO Sanjay Mehrotra confidently states, “We believe Micron is one of the biggest beneficiaries in the semiconductor industry of the multi-year opportunity enabled by AI.”

The tide is turning in shipment volumes, amid ongoing supply shortages in the semiconductor sector. While this imbalance might ring alarm bells, the equilibrium between limited chip supply and robust demand is driving unit prices higher, resulting in Micron witnessing soaring revenues even with a slight dip in unit volumes. For instance, despite a slight drop in NAND product shipments from the first to the second quarter of fiscal year 2024, NAND revenue surged by 27%.

All told, Micron witnessed a 54% uptick in DRAM sales and an impressive 81% increase in NAND revenue year-over-year.

Remembering Memory Sector Trends

Yet, Micron is not charting record territory at present. Operating within a cyclically intense industry, it’s navigating an uncertain path post the inflation crisis, which may not have fully subsided.

Despite raking in $18.3 billion in revenue over the last four quarters, this pales in comparison to the $33.4 billion peak witnessed two years back. Free cash flow paints a similar narrative, soaring in 2022, only to falter into negative territory early last year, indicating a current cash-consuming phase for the company.

MU Revenue (TTM) Chart

MU Revenue (TTM) data by YCharts

It seems that Micron’s stock surge rests on somewhat unsteady foundations. Optimistic investors are banking on sustained AI-driven growth, overlooking the potential headwinds from a volatile global economy and the persistent chip manufacturing capacity crunch.

In my own investment journey, Micron has been a shining star over the long haul. The shares acquired back in the summer of 2011 have delivered a jaw-dropping 1,200% gain, eclipsing the dividend-adjusted performance of the S&P 500 that rose by a mere 400%.

While the allure of Micron remains strong, I’m reluctant to increase my exposure at this juncture. The recent price spike appears exuberant, prompting a prudent move to trim holdings (albeit not entirely) and diversify gains into promising, lower-priced ventures. Though my investment mantra often leans towards ‘forever,’ periodic portfolio rebalancing is never a bad idea.

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Anders Bylund is invested in Micron Technology. The Motley Fool does not hold positions in any of the mentioned stocks. The Motley Fool abides by a disclosure policy.

The perspectives and opinions shared herein represent those of the author and do not necessarily align with those of Nasdaq, Inc.