Micron’s Profit Rains From the Clouds

  • Micron (MU) reported strong results and guidance
  • The memory chip maker predicts shortages will last into next year
  • Cloud data centers are the growth key
Micron Technology (MU) Boise . Micron is a leading company in semiconductor manufacturing. View of top of building with name
Source: Charles Knowles / Shutterstock.com

Micron Technology (NASDAQ:MU) stock bounced higher as its earnings indicated demand for semiconductor chips remains well above supply.

Micron earned $2.26 billion, $2 per share fully diluted, on revenue of $7.78 billion during the quarter ending March 3. This handily beat analyst estimates. Micron also issued positive guidance, predicting sales growth of 11% and earnings growth of 15% during the current quarter.

The results sent the stock up 2.7% in overnight trading, on top of a similar gain before earnings came out. Micron is now worth $92 billion, but still has a low price to earnings ratio of under 13.

MU Micron Technology $78.78

The Cloud Supercycle

Micron remains a cheap stock because semiconductors have been a boom-and-bust business for decades.

Revenue remains choppy. While the costs of producing chip memory continue to decline, prices can fall ahead of the improvement. Micron had more revenue and net income in fiscal 2018 than is expected for fiscal 2022.

Micron stock is also cheap because of competition. While it’s the dominant American supplier, production still trails Korean competitors Samsung (OTCMKTS:SSNLF) and SK Hynix (OTCMKTS:HXSCL).

Demand for Micron chips skyrocketed last decade as chip memory replaced disk memory in PCs, and phones replaced PCs as the primary device for most consumers. Market saturation after 2018 cut demand. But now cloud data centers are picking up that slack. Micron says data centers now take more memory than phones. That growth is expected to continue, with half of all cloud data centers still being built in the U.S.

Despite having over $10 billion in cash and short term securities on its books, against just $7 billion of long-term debt, Micron is pushing alongside Intel (NASDAQ:INTC) for subsidies that will let it “in-shore” more production. CEO Sanjay Mehotra says U.S. aid will help the company expand its footprint in Boise, where it is already the second-largest private employer. Micron has 12 manufacturing locations around the world but says it’s safe from any disruption caused by the Russia-Ukraine war.

Riding the Wave

Yet MU stock still remains very volatile.

Shares traded near $100 each in January, and as low as $70 when the war began in earnest. At its present level it has recovered just half that loss and is still down 5% over the last year. The dividend, 10 cents/share, only began last year and will yield just 0.5% if continued over a year.

Despite the volatility, analysts are enthusiastic about Micron stock. There are 19 following it at Tipranks and all but two say buy it. Their average price target of $118 is 39% ahead of where it is presently trading.

But timing can be the key to profit. Analyst upgrades accompanied the stock’s recent bounce off its lows. While there were concerns about supply coming out of the war news, demand remains strong.

The Bottom Line on MU Stock

Timing is the key to maximizing your profit in Micron.

The latest downturn in the share price was the second in less than a year. There were also hard falls in 2018 and 2020.

But for each new low there is a higher high. MU stock is up 195% over the last five years, a nearly 40% capital gain each year. That’s twice the gain of the S&P 500 average.

The best window for buying MU stock may be closing, but long-term investors should still make money even if they buy now. The best strategy is to watch the charts and treat each skid as a buying opportunity. Your patience will be rewarded.

On the date of publication, Dana Blankenhorn held long positions in INTC. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com, tweet him at @danablankenhorn, or subscribe to his Substack.

Article printed from InvestorPlace Media, https://investorplace.com/2022/04/mu-stock-microns-profit-rains-from-the-clouds/.

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