Going into today’s earnings report, expectations for Micron Technology, Inc. (NASDAQ:MU) were sky high. A 13.5% increase in the stock’s price since the last earnings report in December had brought the market cap up to $29.7 billion, not bad for a company with $12.4 billion in fiscal 2016 revenue that lost $276 million, 27 cents per share.
But the market for computer chip memory has always been volatile. Last year’s bust can become this year’s boom.
Analysts were expecting earnings of 80 cents per share, with revenue of $4.6 billion, 59% more than a year ago and up 15% from the last quarter. The “whisper number” was even higher, looking for earnings of 89 cents per share on revenue of $4.65 billion.
If Micron’s news is good, Jim Cramer added, you might want to load up on other memory stocks like Western Digital Corporation (NASDAQ:WDC), which delivers earnings for its third fiscal quarter on April 27.
Anyway, were we good?
The final number was close to the whisper forecast, GAAP earnings of 81 cents per share, on revenue of $4.648 billion. On a non-GAAP basis, however, the earnings came in at 90 cents per share, or $1.03 billion.
The company’s press release indicated everything is going in the right direction, with gross margins hitting 36.7% on a GAAP basis, 38.5% on a non-GAAP basis. Revenues were up 58% from a year ago, 17% from the previous quarter.
In thin after-market trading, the stock was up 9.5% to $29.03 per share within minutes of the early announcement, after closing at $26.47.
Readers should be warned, however, that early trends in the aftermarket don’t always bear out overnight. FedEx Corporation (NYSE:FDX) shares fell 4% in the minutes following its earnings report earlier this week, before traders read the fine print and began buying later in the hour, rising 5% before the market opened.
The Micron Story
The Micron story is that the company is heavily leveraged to the price of memory chips, specifically Dynamic RAM Access Memory or DRAM and Negative-AND or NAND memory used in flash drives.
Remember the thumb drives you used to buy? Those were Flash chips inside that USB device. Those same chips have since moved into phones, tablets and PCs, and they’re now infiltrating clouds, because they are much faster than hard drives.
Spot prices for DRAM and NAND Flash memory have both been trending up, and U.S. policymakers are very concerned that we maintain our place in that market. Both these factors bode well for Micron as an investment.
As to Micron’s big customers, both Western Digital and Seagate Technology PLC (NASDAQ:STX) are up over the last quarter, meaning the after-market for memory also remains strong. Micron also makes its own memory subsystems under the Crucial Memory and Lexar Media brands.
The normal caution still applies. Price hikes on memory are always short-term. Over time, new memory technologies, like 3D memories, are going to mean new generations of memory with even-more storage, and obsolescence for earlier generations. (When was the last time you used that 256 Megabyte thumb drive you got at a trade show?)
Bottom Line on MU Stock
Micron has traded publicly in its present form since 2010. It had a great run in 2013 and 2014, hitting a high of $36 before falling back to its 2016 low of $9 as demand dried up and prices plummeting.
Despite the joy of Micron bulls the same thing could happen again. New product cycles always push prices on older merchandise to the floor. Optimism over what is coming next can create speculative fevers that easily break in the light of day.
Right now, Micron looks good, but investors will want to check in regularly and be ready to bolt at the first sign of trouble, if they want to keep these gains.
Dana Blankenhorn is a financial and technology journalist. He is the author of the sci-fi novella Into the Cloud, available at the Amazon Kindle store. Write him at firstname.lastname@example.org or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this story.