Micron’s (NASDAQ:MU) recent decline has created a buying opportunity

Shares of Micron Technology ( MU ) have retreated nearly 41% from a new all-time high of $153 per share in June. The stock is currently trading at $91 per share, and the market is wondering if the recent decline is alarming or has created an attractive entry point. This is the question I will answer in this article.

To understand the potential impact of this withdrawal, it’s important to first consider Micron’s position in the semiconductor industry. Micron is a major player in the semiconductor space, particularly in memory products. Known for the production and distribution of dynamic random access memory (DRAM), flash memory and USB flash drives, Micron holds a significant position in the industry. The $100 billion memory chip giant has about a 26 percent market share in the DRAM sector, according to data from TrendForce. This leader in memory technology shows its potential for future growth.

Given its leadership position, the recent decline could be seen as a potential opportunity rather than a cause for concern. I am bullish on Micron and believe the recent decline has created a buying opportunity due to its industry leadership, favorable external factors and current valuation.

Micron is the leader in memory chips

At the heart of my bullish thesis for Micron is its leadership position in memory chips. As previously mentioned, it has a 26% market share and ranks third behind two Korean DRAM manufacturers: Samsung (39.6% market share) and SK Hynix (30.1% market share). Micron has the potential to increase its market share as it ramps up production of its advanced technology nodes in both DRAM and NAND products. These are the products that power today’s most complex smartphones and PCs with AI.

Moreover, Micron exceeded the upper end of its guidance for sales, net income and gross margins in the third fiscal quarter of 2024. Demand for Micron’s products was low last year due to oversupply, but now that problem is being resolved and it keeps getting better. . The company’s sales rose nearly 82% to $6.81 billion during the quarter as strong demand for its products allowed it to charge a premium to its customers.

Additionally, Micron benefits greatly from AI as its DRAM and NAND products are used in everything from smartphones to power-hungry data centers. The company grew its sales by 50% on a sequential basis, all thanks to favorable AI demand trends for its memory products.

Micron is well positioned to grow

Looking ahead, I remain bullish on Micron due to several external factors that could drive it to new highs, with AI being a major contributor. Micron’s products are increasingly popular with data center customers, and management anticipates that data center revenue will reach record levels in fiscal 2024 and continue to grow in 2025. Micron expects its power to establish prices to strengthen, leading to higher gross margins, which were recorded at 28% in FQ3 2024.

The story continues

Additionally, Micron’s data center business is expected to offset any near-term weakness in the PC and smartphone markets. While these markets are expected to grow, I also see Micron’s AI business taking over as a dominant driver of its top and bottom line in the coming quarters. Management noted that it will focus more on high-margin AI-related products. Lower costs and improved pricing power due to a favorable supply and demand mix are a recipe for increased profitability.

In addition, Micron is expected to benefit enormously from government incentives. The US government is trying to build up its domestic chip manufacturing capabilities and is therefore giving companies like Micron sizable grants. The company recently won $6.1 billion in CHIPS and Science Act grants, which will allow it to fund its manufacturing expansions in Idaho and New York. Management aims to achieve cost efficiencies in production once facilities are scaled.

Micron is ridiculously cheap right now

Finally, I like the discount Micron is offering investors right now. The stock trades like a business with no near-term growth prospects, and I’m sure you’ve figured out that it has plenty. Micron shares trade at about 10.59 times forward earnings, a discount of nearly 50% to its sector average of 23.5. For a business that’s expected to grow earnings by 127% this year, that’s extremely cheap.

Analysts’ take on Micron Stock

On the Street, Micron Stock has a consensus rating of “Strong Buy” based on a recommendation of 25 Buy, 2 Hold and 1 Sell. MU’s average price target of $161 implies a 76.50% upside from current levels, however, the Street-high of $225 represents a 147% upside.

See more MU analyst ratings

conclusion

In summary, I expect Micron’s industry-leading position in memory chips, along with its ability to charge a premium for AI customers, to drive long-term profitability for the business. As the U.S. government works to shore up chip manufacturing, the stock has several tailwinds that could help it reach new highs.

Therefore, Micron is a high quality and profitable business at the cutting edge of technology and is currently for sale. My recommendation on the stock is a Strong Buy, which aligns with the consensus of 25 Wall Street analysts.

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