Look around, look around. How lucky it is to be Micron Technology Inc. (NASDAQ:MU) right now.
The best test of Micron’s durability is the eye test. Look at your phone. Look at your computer. Connect to your cloud. Think about gaming and artificial intelligence — all the fast-twitch services that are replacing simple searching and information accessing.
Now, understand that all those things, and all those application spaces, require chip memory. Disks are just too slow. Chips are faster. Disks break. Chips don’t. The price advantage of disk continues to wither away, as machines replace people in accessing machines.
Micron and its memory chips are at the sweet spot of all this, but even after an historic run-up since the end of December 2015 — the stock price jumping from $10.50 per share to the May 21 market open of nearly $55 — it’s still trading at just 8.4 times earnings.
Money Making Machine
That’s because as fast at the stock price is rising, earnings are rising just as fast. Micron had earnings of $2.80 per share and revenue of $7.4 billion for its most recent quarter. Analysts are expecting the same thing when it reports again June 21.
This puts the company on pace to deliver $28 billion in revenue for the current fiscal year, against last year’s $20 billion — and it could nearly double last year’s $5.8 billion in earnings as well.
The question Micron analysts like RBC Capital are asking is not why the stock is doing so well, but why it’s still so cheap.
The reason for that is the chip cycle. What goes up, especially in memory, eventually falls, as companies ramp up production. Samsung Electronic Inc. (OTCMKTS:SSNLF) and Intel Corp. (NASDAQ:INTC) are both churning out memory as fast as they can and, in the past, moves like this have always squashed Micron’s momentum.
But the nature of computing, what computers look like and what they do, is changing in this decade. It’s not just that you’re putting 8, 16, or 64 Gigabytes of memory in your hand when you walk out the door with your phone. It’s that the growth applications of this year, next year and of years to come no longer depend on your pressing buttons.
Machine to Machine
What’s increasingly happening is that machines are talking to machines, not people. If you have an Amazon.Com Inc. (NASDAQ:AMZN) Alexa or Google Assistant from Alphabet Inc. (NASDAQ:GOOGL) in your house, you’re building machine intelligence into your daily life.
This is happening everywhere. Clouds aren’t just connecting with people, they’re connecting with devices and formerly-inert objects, running our world faster than we can. While dystopian theorists wring their hands over this, it means you’re getting a promotion, from the hands-on work of life to a managerial direction of it. Blue-collar man is becoming white-collar woman.
That’s why Micron is no longer a popular short. Micron chips aren’t just going into client devices but into servers. What is happening in Micron’s results, in other words, is highly sustainable.
The Bottom Line on MU Stock
The bottom line is you don’t need to look at Micron as closely as you once did.
You can buy it, put it away and have confidence that, five years from now, you’ll have a lot more money than you did before.
Barring a collapse of world trade or a general war, the wind is going to remain at this company’s back for years to come. This is the kind of company a young investor can buy, put away, and forget about.
Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in AMZN.
