1. Micron Technology Inc. (NASDAQ:MU)
Forward Price-to-Earnings Ratio: 10.56
Number of Hedge Fund Holders: 120
Micron Technology Inc. (NASDAQ:MU) is a producer of computer memory and computer data storage including dynamic random-access memory, flash memory, and USB flash drives, for a wide range of electronic devices, including smartphones, computers, servers, and data centers. Many hyperscalers rely on it for memory products, including Apple.
In the FQ3 2024, the company’s revenue increased by a record 81.53% year-over-year, primarily driven by robust AI demand. The demand for its DRAM and NAND flash memory is rising, largely due to growth in data centers, AI, and automotive technology. DRAM revenue represented 69% of total revenue, up 13% sequentially. Data center revenue alone rose over 50% sequentially, while NAND flash products revenue increased by 32%.
Compute and Networking Business Unit revenue improved 18% sequentially. Embedded Business Unit revenue was up 16% driven by record revenue in automotive, and the revenue for the Storage Business Unit increased by 50% quarter-over-quarter. All these improvements were offset just very slightly by the 1% sequential decline in the Mobile Business Unit.
Despite the strong performance in FQ3 2024, it’s facing challenges due to an inventory glut from last year. The company is heavily investing in high bandwidth memory production, which is expected to generate billions in sales by fiscal 2025 compared to just hundreds of millions in 2024.
The company’s current challenges are due to its substantial investments in expanding manufacturing capacity. In FQ3, the company invested $2.06 billion. However, these investments are expected to drive future growth, especially with support from the US government. Strong AI demand positions it to benefit from rebounding memory prices and favorable inventory balances.
ClearBridge Value Equity Strategy stated the following regarding Micron Technology, Inc. (NASDAQ:MU) in its Q2 2024 investor letter:
“Stock selection in the IT sector proved to be the largest contributor to performance, particularly driven by the strong performance of Micron Technology, Inc. (NASDAQ:MU) The company, which designs, develops, manufactures and sells memory and storage products, continued its strong performance alongside other AI beneficiaries as the anticipated demand for new and additional storage essential for housing and training large language AI models continues to grow.”
While we acknowledge the growth potential of Micron Technology Inc. (NASDAQ:MU), our conviction lies in the belief that AI stocks hold great promise for delivering high returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than MU but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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