Is Micron Technology stock still seeing buying near all-time highs?
The answer may not be what you think.
About a year after generative AI appeared, micron technology (M.U. -4.47%) It has received some attention. Excitement about Micron’s future prospects has fueled an impressive 94% rise over the past year (as of this writing), putting the stock close to another all-time high.
The company is a leading supplier of memory (DRAM) and storage (NAND) chips, essential components of AI processing, and is a beneficiary of these continued secular tailwinds.
This left investors with a dilemma. Is Micron Technology stock still a buy after a 143% gain in roughly 15 months? Let’s see what the evidence reveals.
Image source: Getty Images.
How Micron Technology Rides the AI Trend Higher
Micron’s claim to AI fame is that its storage and memory chips are tightly integrated with graphics processing units (GPUs) that enable generative AI. nvidia‘s GPUs are already the gold standard, but Micron is working to make them even faster.
Late last year, Nvidia announced that its Hopper H200 Tensor Core GPU would be based on Micron’s High-Bandwidth Memory 3E (HBM3E), providing “advanced memory capable of processing massive amounts of data for generative AI and high-performance computing (HPC) workloads.” announced that it would provide According to a press release. Nvidia also said that HBM3E helped create “nearly double the capacity and 2.4x more bandwidth compared to its predecessor, the Nvidia A100.”
Nvidia’s AI-focused data center processors are expected to launch in the second quarter. In late February, Micron announced that it had begun mass production of the HBM3E, which delivers “superior performance” while using about 30 percent less power than competing products. But just a few weeks later, management made the surprising announcement that HBM3E was “sold out for 2024 and the overwhelming majority of 2025 supply has already been allocated.”
This helps demonstrate strong demand for Micron’s components, which is only expected to grow from here.
Micron Technology’s growth is impressive
The rapid adoption of AI, as mentioned earlier, has fueled Micron’s growth. In the second quarter of fiscal 2024 (ending February 29), Micron generated revenue of $5.82 billion, up 58% year over year and up 23% quarter over quarter. The company noted that the surge in demand “led to strong price increases.” This helped Micron return to profitability faster than expected, delivering adjusted earnings per share (EPS) of $0.42.
Management is calling for accelerated growth. Micron expects third-quarter sales to grow 76% year-on-year to $6.6 billion. Adjusted EPS is expected to increase by $0.45 compared to the year-ago quarter’s loss.
One of the key drivers fueling the massive demand is the rush to upgrade data centers to meet the computational rigors of AI processing. Bernstein analyst Toni Sacconaghi expects the AI server market to grow 75% annually over the next three years, doubling the server market. He called it “a level of growth unprecedented in history.”
Although demand is currently limited to servers, AI is expected to eventually spread to personal devices including desktops, laptops, notebooks, and even smartphones, which is expected to lead to a surge in demand for Micron’s other storage and memory chips. .
How vast is the opportunity?
It’s been a little over a year since generative AI took the world by storm, but adoption is just beginning. Companies are excited about generative AI, which can increase productivity and reduce costs by automating tedious and time-consuming tasks. And it seems like every day there are new potential applications being considered.
Experts are struggling to estimate the potential size of the AI market, but the reality is that no one knows for sure. One of the more moderate views suggests that the technology could create economic value of between $2.6 trillion and $4.4 trillion annually, according to global management consulting firm McKinsey & Company.
Viewed in the context of Micron’s impressive growth and opportunities ahead, the stock is still attractively priced, selling for about four times next year’s sales.
History shows there are limits to the current growth spurt, especially for cyclical chip companies like Micron. That said, adoption of generative AI is expected to continue for years, if not more than a decade, making Micron an attractive opportunity even with its stock price near all-time highs.
