Why Micron Technology Shares Soared Thursday

Actions of Micron technology (MU 6.08%) appeared on Thursday, rising as much as 6.5%. As of 1:52 p.m. ET, shares were still up 6.5%.

The catalyst that lifted the memory and storage chip maker was an announcement that bodes well for shareholders.

Redemptions resume

In a regulatory filing with the Securities and Exchange Commission (SEC), Micron’s management updated the status of its stock buyback program. The company initiated its buyback program in May 2018 through a variety of “open market purchases, block transactions, privately negotiated transactions and/or derivative transactions.” However, in December 2022, management suspended that program, citing the industry-wide recession.

Fewer sales and reduced cash flow put Micron in a weak position, and management decided to preserve precious capital to better cope with difficult economic conditions.

This week, Micron said: “In light of improved conditions, on August 7, 2024, the company determined that repurchases may resume, which will help offset the dilution of employee stock purchase programs. The company remains committed to further strengthening its balance sheet and maintaining its investment grade rating.”

What does this mean for investors?

Like many technology companies, Micron offers its employees incentive stock options as a form of compensation. This allows employees to buy company stock over a set period of time at an agreed upon price, incentivizing employees to help the company succeed while financially benefiting from that success.

On the other hand, this generally requires the issuance of additional shares, leading to share dilution, thereby eroding value for current shareholders. Many companies adopt buyback plans to offset that dilution, which in turn benefits shareholders by stemming the dilution.

Micron shareholders cheered the news, sending shares higher.