1. Micron Technology, Inc. (NASDAQ:MU)
Value of Point72 Asset Management‘s 13F Position: $206 million
Number of Hedge Fund Shareholders: 83
Topping the list of Steve Cohen’s newest buys is Micron Technology, Inc. (NASDAQ:MU), another big player in the semiconductor space. Cohen was one of several money managers to add MU to their portfolios in Q4, as there was a 28% increase in hedge fund ownership of the stock. Micron nonetheless remains less popular among hedge funds than it has at various points over the past decade, most notable around 2014-2015.
Micron Technology, Inc. (NASDAQ:MU) shares are down by over 16% in 2022, paring back some of the hefty 46% gains they enjoyed from mid-October to mid-January. Regardless, they’re still down by nearly 16% over the last year, struggling to woo investors even amid a global chip shortage.
Hazelton Capital Partners found that curious earlier this year before Micron’s big Q4, having this to say about Micron Technology, Inc. (NASDAQ:MU) in its Q3 2021 investor letter:
“It’s hard to explain how shares of Micron Technology, manufacture of DRAM and NAND semiconductor chips, can fall during a global chip shortage. In most industries, focusing on demand can give you a clear insight into what lays ahead for a company. Today, the memory and storage chip industry is no different.
However, in the past, companies focused on market share led to the reckless build out of chip fabrication plants (FABs), oversupply, falling average selling prices (ASPs) of memory and storage chips, lower margins, and declining cash flows. As the industry consolidated – there are now just 3 major producers of DRAM and 5 on the NAND side – rational behavior among the key players began to take hold as competitors began focusing more on R&D. Currently, chip pricing remains cyclical although less so than in the past and that cyclicality has a long-term upward bias. The ongoing transition to newer and more robust platforms (3D 176-layer NAND & 1-Alpha node DRAM) has provided the memory and storage chip industry with improved supply capacity under its current manufacturing footprint, ultimately pressuring ASPs. Over the past three years, as most of the large platform conversions have already taken place, being able to add more bits per wafer has reached a saturation point. With no major FAB build outs planned in the near-term by competitors Samsung or SK Hynix, constrained supply and flattening cost curves should lead to durable and upward sloping ASPs once the recent volatility from the chip shortage subsides.
Currently Micron Technology trades at just 8x 2022 estimate earnings. MU is expecting growth in both DRAM and NAND not just from the supply of more chips to data centers, artificial intelligence, the auto sector, and mobile devices, but also from greater demand for gigabyte capacity per unit within those segments. With a healthy balance sheet, improving return on invested capital, and expanding cash flows, not only should Micron benefit from improving future earnings but its multiple should also reflect the transition to a flattening cost curve.”
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