Is now the time to buy Micron Technology stock?

The artificial intelligence (AI) market has exploded over the past year, and some of the companies benefiting from this growth are Micron Technology (Nasdaq: MU)The company’s sales are soaring because AI systems require huge amounts of computer memory and storage — exactly what Micron excels at.

This has led to a phenomenal rise in the company’s stock price: Last July, Micron’s stock price hit a 52-week low of $60.50. A year later, the stock price has more than doubled, hitting a peak of $157.54 in June.

However, Micron’s stock price plummeted after the company released its third-quarter earnings, which ended May 30. Is this an opportunity to buy shares, or does the share price drop suggest a reason to avoid investing in Micron?

Let’s take a look at Micron’s performance to answer these questions and determine whether the company is a worthwhile investment in the long term.

Micron’s Financial Performance

Micron’s stock price fell after the earnings report because Wall Street was not impressed with the company’s fourth-quarter financial guidance. The company expects fourth-quarter revenue of about $7.6 billion, up 90% from $4 billion in the same period last year.

To understand this guidance, let’s look at how Micron’s revenues trended in fiscal 2024.

Data source: Micron Technology. YOY = year-over-year change.

As you can see, Micron’s revenue has grown every quarter this fiscal year, thanks to customer demand generated by the emergence of AI. And, taking a closer look at Micron’s third quarter, performance was strong across multiple financial metrics.

The company’s third quarter Free Cash Flow FCF of $425 million was a sharp reversal from negative $1.4 billion last year.

Additionally, Micron ended the third quarter with a strong balance sheet. Total assets were $66.3 billion, including $7.6 billion in cash and cash equivalents. Total liabilities were $22.0 billion.

Micron’s Current Demand Environment

Overall, Micron had a strong third quarter and should see continued revenue growth momentum due to the growth of the AI ​​market, which is projected to grow from $136 billion in 2023 to $827 billion by 2030.

Micron is gaining share in this market: In fact, Micron executives said the high-bandwidth memory chips AI needs to crunch data and perform complex calculations are already sold out for this year and through 2025.

The strong demand environment prompted Micron to raise prices. gross profit Revenue is growing, increasing from 19% in the second quarter to 27% in the third quarter, and Micron expects gross margins to improve further to around 34% in the fourth quarter.

The story continues

With demand for the company’s products and rapid growth in the AI ​​market, Micron CFO Mark Murphy said the company expects to achieve record revenue and significantly improve profitability in fiscal year 2025.

Should I buy or not buy Micron stock?

Micron is doing well right now, but when evaluating it as a long-term investment, it’s important to remember that it operates in a cyclical industry, meaning that even though AI is driving growth today, Micron will eventually face an industry downturn.

For example, second-quarter fiscal 2023 revenue fell more than 50% to $3.7 billion from $7.8 billion in the prior fiscal year. At the time, CEO Sanjay Mehrotra explained that “the semiconductor memory and storage industry is facing its worst downturn in the last 13 years.”

Now, with the company’s fortunes reversing and the AI ​​market in its early stages of expansion, Micron is well positioned to continue growing revenue.

Given this growth, Mehrotra declared that “Micron will be one of the biggest beneficiaries in the semiconductor industry from the multi-year growth opportunity that AI brings.”

Although Wall Street was disappointed with Micron’s fourth-quarter outlook, the current consensus among Wall Street analysts is a buy recommendation with a median price of $165 for Micron’s stock, suggesting confidence that the stock price will rise.

Given that AI has been a driver of Micron’s revenue growth for several years, and that the stock price has fallen since its recent earnings report, now may be a good time to buy Micron stock and hold for the long term as the AI ​​market expands.

Should you invest $1,000 in Micron Technology right now?

Before buying Micron Technology stock, consider the following:

of Motley Fool Stock Advisor The analyst team Top 10 Stocks Here are the stocks investors should buy now…Micron Technology was not among them. The 10 selected stocks have the potential to generate big gains over the next few years.

Things to consider NVIDIA This list was created on April 15, 2005…If you invested $1,000 at the time of recommendation, That comes to $771,034.!*

Stock Advisor With portfolio construction guidance, regular updates from our analysts, and two new stock picks every month, we provide investors with an easy-to-follow blueprint for success. Stock Advisor The service is More than 4 times S&P 500 Recovery Since 2002*.

View 10 stocks »

*Stock Advisor returns as of July 2, 2024

Robert Izquierdo The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool Disclosure Policy.

Is now the time to buy Micron Technology stock? Originally published on The Motley Fool