Picture supply: Getty Photographs
It’s honest to say that Nasdaq chip inventory Micron (NASDAQ: MU) is sizzling proper now. Over the past yr, it has surged about 350% amid an AI-related reminiscence ‘supercycle’.
Now, I’ve fully missed out on these explosive beneficial properties sadly. May the tech inventory nonetheless be value shopping for for my ISA although?
Blowout earnings
Final evening (18 March), Micron posted its earnings for the second quarter of its fiscal 2026 yr. They usually blew the doorways off Wall Avenue expectations.
For the quarter, income got here in at a document $23.86bn, up 196% yr on yr. In the meantime, adjusted earnings per share got here in at a document $12.20 – miles forward of the consensus forecast of $9.31 – versus $1.56 a yr earlier (+682% yr on yr).
Commenting on the earnings, CEO Sanjay Mehrotra stated: “In the AI era, memory has become a strategic asset for our customers.” He added that the corporate expects “significant records again in fiscal Q3.”
Zooming in on the steering, the corporate stated that for Q3, it expects income of $33.5bn plus or minus $750m (implying year-on-year progress of over 250%) and diluted earnings per share of $19.15 plus or minus $0.40. Analysts had been anticipating $12.05 in earnings per share on $24.3bn in income so this steering was means above estimates.
The inventory nonetheless seems low-cost
So clearly, Micron is benefitting from the AI growth. What’s occurring is that demand for reminiscence is surging on account of excessive demand for GPUs made by the likes of Nvidia, which require reminiscence to energy generative AI fashions.
What’s attention-grabbing is that the inventory nonetheless seems actually low-cost. Presently, it trades on a forward-looking price-to-earnings (P/E) ratio of simply 7.3 utilizing subsequent monetary yr’s earnings forecast (which can go up given the momentum the corporate has proper now).
Word that a number of Wall Avenue corporations have raised their value targets for the inventory after final evening’s earnings. Each JP Morgan and TD Cowen are focusing on $550 – about 24% greater than the present share value.
What are the dangers?
Nevertheless, whereas there’s loads to be enthusiastic about right here, there are fairly just a few dangers. One is that the reminiscence enterprise is cyclical.
So, whereas Micron’s revenues are surging proper now, issues may rapidly change. Word that in 2016, 2019, and 2023, Micron’s revenues plummeted yr on yr.
Within the close to time period, the AI growth ought to assist demand. But when Huge Tech firms cease spending on Nvidia’s GPUs, issues may get ugly.
One other situation is that Micron simply advised traders that capital expenditures will “step up meaningfully” in fiscal 2027 with construction-related prices rising by over $10bn. This type of capex may hit income.
After all, after a 350% rise within the share value during the last yr (the chart is parabolic and that scares me), there’s at all times the prospect of some revenue taking sooner or later (possibly even at this time). That is one other threat to contemplate.
My transfer now
Placing this all collectively, I’m not going to purchase Micron inventory but. I have to do some extra analysis.
I wish to get a greater thought of long-term demand for reminiscence. I additionally wish to be taught extra in regards to the firm’s aggressive benefit.
