Is it Wise to Purchase Micron Shares During Current Price Dip?
On December 18, Micron Technology, with a ticker symbol MU (4.04%), unveiled its first-quarter earnings report for the fiscal year 2025, ending Nov. 28. The numbers looked impressive, showcasing an 85% year-over-year surge in revenue, mainly driven by the blossoming data center business thriving in the AI revolution. Moreover, the profit margins are widening as revenue accelerates. Micron's net income reached a staggering $1.9 billion, an enormous leap from the loss of $1.2 billion during the same timeframe in 2023.
Despite the stellar quarterly results, Micron's shares have nosedived by 18% since the earnings announcement in mid-December, with the current market price hovering dangerously close to the 52-week low of $85. So, what's causing this downward spiral? Let's dig a bit deeper.
The Price Drop: An Inside Look
In earnings calls, companies may provide a rough estimate, known as financial guidance, to help investors and analysts gauge upcoming revenue and earnings. Micron's guidance for revenue of $7.9 billion (plus or minus $200 million) for Q2 and EPS of $1.23 (plus or minus $0.10) fell short of Wall Street's expectations. The predicted high end of Micron's revenue forecast translates to a top-line figure of $8.1 billion. With a lofty estimated $8.9 billion revenue by analysts, no wonder Micron's guidance is perceived as underwhelming.
Moreover, Micron's EPS guidance of $1.23 falls significantly below the consensus estimate among analysts, which stands at $1.97. Expected weaker-than-expected financials have undoubtedly spurred investor skepticism, igniting the sell-off.
The Silver Lining: The Long-Term Perspective
Although Micron's guidance might look unpromising at first sight, it's essential to take a step back and look at the bigger picture. If Micron achieves its target revenue of $7.9 billion in the second quarter, this marks a 36% growth rate in year-over-year revenue. Moreover, the predicted EPS of $1.23 indicates a 73% year-over-year earnings growth rate.
With figures like these, it's hard to dismiss a company exhibiting mid-30% revenue growth and accelerating earnings power double that rate. Additionally, take a moment to recognize Micron's role in the chip world. As a pioneer in storage and memory chip development, Micron is well-positioned to capitalize on the expected trillions of dollars in AI capital expenditures (capex) over the ensuing years. With new GPUs from top-notch manufacturers such as Nvidia, Advanced Micro Devices, Amazon, Alphabet, Microsoft, and Meta Platforms releasing in the market, Micron stands to benefit from the increasing need for enhanced storage and memory chips.
A Tempting Opportunity: Micron's Valuation
While every chip industry player contributes differently to the semiconductor landscape, Micron's P/E multiple of 12 is hovering near the year's lowest levels. This valuation gap separating Micron from other semiconductor peers is largely unwarranted, in my view. The current sell-off has provided investors an excellent chance to purchase shares at a discount with the intention of holding long-term.
References:1. Micron Technology Earnings Call Transcript2. Micron Stock Drops Amid Earnings Miss And Price War3. Micron Stock Selloff Exacerbates Rare Air Punch4. Micron's Margin Woes Are Worse Than the Street Thinks5. Why Micron Stock Tumbled after Earnings Report
Despite Micron's impressive first-quarter earnings report showing a significant revenue increase and widening profit margins, the company's shares have experienced a 18% drop since the announcement. This downward trend could be attributed to Micron's guidance for Q2 revenue of $7.9 billion ($8.1 billion at the high end) and EPS of $1.23, falling short of Wall Street's expectations. The perceived underwhelming financials have sparked investor skepticism, potentially contributing to the sell-off.
However, it's crucial to consider the long-term perspective. If Micron achieves its projected revenue and EPS for Q2, it represents a substantial year-over-year growth rate. As a leader in storage and memory chip development, Micron is poised to benefit from the expected AI capital expenditures and the release of new GPUs by top manufacturers. This situation presents a potential opportunity for investors to purchase shares at a discount.
In light of the current stock price and the company's position in the chip industry, Micron's P/E multiple of 12 appears undervalued compared to other peers. This valuation gap could make it an attractive investment opportunity for those with a long-term investment strategy.
Investors may want to closely monitor Micron's financial performance and any potential shifts in the semiconductor market to gauge whether the current selling pressure persists or if the company's fundamental strengths are recognized and reflected in the stock price.
