1 AI action to buy Hand Over Fist during sale

At first glance, Micron technology (MU -3.07%) it might not look like a slam-dunk buy today.

The designer and manufacturer of computer memory chips is not profitable on a trailing 12-month basis. That’s also true of Micron’s free cash flows — they’ve been negative for the past four quarters. Final sales were down 34% from all-time highs in summer 2022.

And investors don’t seem happy about these financials either. Micron’s stock price is down 39% from its all-time high two months ago. The company’s stock chart looks like an extra-volatile version of tech sector trackers like Invesco QQQ Trust (QQQ -1.14%) over the past five months – and that’s not a compliment:

MU data by YCharts.

But here I am, recommending Micron as a great buy in August 2024. The company is not profitable, sales are declining, and the stock price is collapsing. How could this confluence of bearish signs add up to a “buy” signal?

There is more to the Micron story. Let me show you.

Micron’s recent struggles

Micron’s sales and profits have fallen very low indeed recently. Starting with the third fiscal quarter of 2022, bottom line revenues fell by more than 27% over the next five quarters. Adjusted earnings per share fell to a negative $6.05 per share and annual cash totaled $6.1 billion.

You have And this should be a leading hardware vendor in the midst of an explosive boom in the artificial intelligence (AI) market?

It’s a tough pass for some investors, but I think it’s a big mistake to stop your analysis of Micron there.

Why Micron Matters in This Golden Age of AI

You see, Micron is absolutely taking advantage of the AI ​​opportunity. Computer systems built to train advanced AI software require a lot of memory. So are systems that deliver consumer-friendly (or enterprise-ready) AI services when training is complete.

And do you know what your smartphone needs if you want to provide AI services without a cloud computing hub? That’s right, lots of memory! For example, the basic model of Alphabethis (GOOG -1.13%) (GOOGL -1.11%) The Pixel 9 phone comes with several AI features, including the Gemini voice assistant and photo finishing tools.

It also has 12 gigabytes of RAM, up from 8 gigabytes in last year’s less AI-packed Pixel 8. That’s an above-average increase in memory — the Pixel 8 had the same memory configuration as the older Pixel 5, which Alphabet released in its predecessor. fall of 2020.

The latest wave of AI flagship phones is expected to inspire a large number of upgrades from older, non-AI phones. The combination of more phone sales and more memory per phone should give Micron a massive revenue boost — and that’s just the smartphone piece of the AI ​​puzzle.

Positive trends are gathering!

AI-powered growth is already underway.

• Micron’s third-quarter sales were up 82% year-over-year, and your average analyst expects even more top-line growth in the fourth quarter.
• Both adjusted and unadjusted earnings have been positive over the past two quarters and should continue to grow for the foreseeable future.
• Free cash flow also appeared in positive territory last quarter. Analysts rarely provide estimates for this measure, but Micron’s cash flows should grow as long as earnings grow.

Micron operates in a very cyclical industry and it is time for new growth. The only kind of time I recommend is to keep your eyes peeled for great companies with low stock prices, and that’s where you’ll find Micron today. The stock is changing hands at 9.8 times forward earnings, and that’s based on a group’s consensus projections that tend to set Micron’s earnings bar too low.

I expect impressive results from Micron as the AI ​​boom unfolds, and the stock is on sale today. You should consider picking up some of this high-quality semiconductor stock on the cheap.