According to Prevailing Trends, Micron Stock Remains Undervalued

Micron (NASDAQ:MU) is successfully exploiting and benefiting from trends like the expansion of AI, the huge growth of e-commerce, and the proliferation of the cloud. Yet the valuation of MU stock remains extremely low.

According to Prevailing Trends, MU Stock Remains Undervalued

Source: Piotr Swat /

That’s because most investors and analysts are failing to see the extent to which the company’s business will be lifted by technology revolutions.

An indication of the extent to which Micron’s results are being improved by the new technological normal came on May 27. That’s when the company hiked its fiscal third-quarter revenue guidance to $5.2 billion-$5.4 billion, versus its previous outlook of $4.6 billion to $5.2 billion. Analysts’ average Q3 revenue estimate before the guidance hike was $4.95 billion.

For Q3 of 2019, the company reported revenue of $4.79 billion amid a decline of prices for its computer memory products. However, its revenue in Q3 of 2018 was $7.8 billion.

But even though Micron’s top line in Q3 will be much lower than it was during the same period two years before, the rebound of its revenue versus the same period a year before and its guidance hike are impressive.

After all, the world is still dealing with the novel coronavirus, which likely caused even large companies to postpone some IT projects. But in general, Micron’s business is clearly rebounding. Given the company’s multiple, strong, positive catalysts, I expect that trend to continue for a long time, lifting MU stock in the process.

AI, e-Commerce and MU Stock

As I noted in a previous column, “one of Micron’s top products, a form of flash memory called DRAM, is typically used in conjunction with artificial intelligence, according to top consulting firm McKinsey.”

Further, I reported that, “research firm Tractica expects annual spending on AI to expand at a compound annual growth rate of 43% between 2018 and 2023.” Data centers, retailers and search engines are all starting to rely to a large extent on AI.

Meanwhile, a Seeking Alpha columnist recently reported that AI is being used to create software and stated that Micron’s “technology is used to power the infrastructure that facilitates artificial intelligence.” He added that “AI servers require six times the amount of {DRAM} compared with standard servers.”

As a result, it’s far from surprising that Micron CEO Sanjay Mehrotra, during an interview on May 27, identified AI as an important, positive driver of the company’s results going forward. 

Mehrotra also cited e-commerce as an important driver of demand for the company’s flash memory products. On its website, Micron pointed out that its DRAM, by powering AI and processing huge amounts of data, allows merchants to more quickly and easily suggest products to online shoppers that they are likely to want to buy.

During the pandemic, consumers have become used to shopping online more than ever before. And many millions of people around the world who did not utilize e-commerce until the coronavirus crisis began likely dipped their toes in the water and will continue doing some of their shopping online even after the pandemic is over.

Consequently, the e-commerce boom is poised to accelerate going forward.

The Work-From-Home Trend and the Cloud

Mehrotra, Micron’s CEO, said that the “work-from-home” economy had resulted in a “surge” of work on cloud projects. He added that the cloud is not only utilizing data centers, which use Micron’s products, but also AI.

Thus, Micron is well-positioned to benefit from the work-at-home trend. Although I think more workers than expected will return to offices at some point, clearly many more employees are going to be based at home than before the pandemic.

The Bottom Line on MU Stock

Micron’s guidance hike and Mehrotra’s statements show that the company is benefiting tremendously from multiple, transformative trends. Meanwhile, its shares are trading at an extremely low forward price- earnings ratio, based on analysts’ average 2020 earnings per share estimate, of ten. Consequently, I recommend buying the shares at their current levels.

As of this writing, Larry Ramer did not own shares of any of the aforementioned securities. Larry Ramer has conducted research and written articles on U.S. stocks for 13 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been airline stocks, oil stocks and Snap. You can reach him on StockTwits at @larryramer.

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