Micron Technology Inc. (NASDAQ:MU): Can It Chip Away Toward A Recovery?

We came across a bullish thesis on Micron Technology Inc. (NASDAQ:MU) on ValueInvestorsClub by RaisingCapital. In this article, we will summarize the bulls’ thesis on MU. The company’s shares were trading at $102.00 when this thesis was published, vs. the closing price of $89.87 on Jan 03.

A technician soldering a semiconductor chip, emphasizing the power of the company’s products.

Micron Technology, Inc. designs, develops, manufactures, and sells memory and storage products. The company operates through four segments: Compute and Networking Business Unit, Mobile Business Unit, Embedded Business Unit, and Storage Business Unit.

While the focus has been on ramping up HBM (high-bandwidth memory), it is a wafer-intensive product with a trade ratio of 3 times more than its legacy DRAM. This means that 3x more wafers will be used to provide the same memory when HBM is manufactured. This creates a shortfall for the other DRAM segments that still hold 80% of the market share.

The HBM market for Micron is already flourishing as it has already received orders for 2024 and 2025. Cloud-based systems using AI and augmented reality rely increasingly on HBM. Even NVIDIA’s Blackwell GPU requires 33% more HBM3E. Along with the PC demand for DRAMs, even AI phones are projected to have 50-100% more DRAM content.  The contribution of HBM is expected to increase from 1.5% in 2024 to 6% in 2025. HBM3E also reduces power usage by 30%, making it a premium product in the market.

DDR5 will still be relevant as it is unlikely for HBM to cannibalize the technology altogether. It provides better bandwidth capabilities than its earlier generations, providing better processing powers for CPUs.

Higher demand and better pricing should expand gross margins to 53% and 38% EBIT margins in 2026. This would translate into an EPS of $15.8 in 2026, higher than the $12 EPS achieved in the peak cycle of 2018. The fair value of the stock, assuming a P/E multiple of 12x would be $190 or 111% above its current level.

While we acknowledge the potential of MU as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. 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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Disclosure: None. This article was originally published at Insider Monkey.