On Dec. 18, semiconductor firm Micron Know-how(NASDAQ: MU) reported earnings for its first quarter of fiscal 2025 (ended Nov. 28) — and by all accounts, the report appeared rock stable.
Micron’s prime line soared 85% 12 months over 12 months, pushed largely by a blossoming knowledge heart enterprise that is little question benefiting from the bogus intelligence (AI) revolution. Extra importantly, the corporate’s revenue margins are widening in tandem with accelerating income. Micron’s first-quarter web earnings of $1.9 billion is a large enchancment over the corporate’s lack of $1.2 billion throughout the identical interval in 2023.
Nonetheless, since Micron’s earnings report in mid-December, shares have cratered by 18% and the present share worth of $85 is dangerously near a 52-week low. What is going on on right here?
Beneath, I am going to define what drove the sell-off in Micron inventory and make a case for why I believe now is an ideal alternative to purchase the dip on this distinctive semiconductor alternative.
Throughout an earnings name, firms will typically concern monetary steerage to supply buyers and analysts with a free gauge of what to anticipate within the upcoming quarter.
In its Q1 report, Micron issued steerage for income of $7.9 billion (plus or minus $200 million) and earnings per share (EPS) of $1.23 (plus or minus $0.10). The excessive finish of Micron’s near-term income forecast implies a top-line determine of $8.1 billion. This was perceived as abysmal by the funding group, because it pales compared to Wall Road’s expectations of $8.9 billion.
Moreover, the corporate’s EPS steerage of $1.23 is materially decrease than the consensus estimate amongst analysts, which sits at $1.97. Given the weaker-than-expected forecast, it is not shocking to see buyers souring on Micron inventory.
Picture supply: Getty Photos.
Whereas Micron’s steerage may seem uninspiring, it is essential for buyers to zoom out and contemplate the larger image. Ought to Micron obtain its goal steerage of $7.9 billion in gross sales throughout Q2, this could suggest a development charge of 36% 12 months over 12 months. Moreover, the EPS forecast of $1.23 implies year-over-year development of 73%.
When you think about these figures, it is laborious to low cost a enterprise that’s rising income by mid-30 share factors and accelerating its earnings energy by almost double that charge.
Along with the financials above, it is essential for buyers to know Micron’s place within the chip realm. Micron develops storage and reminiscence chips. Business analysis means that trillions of {dollars} are anticipated to be invested in AI capital expenditures (capex) over the approaching years. In idea, this subtly implies that coaching and inferencing workloads for generative AI improvement are anticipated to turn into extra refined — thereby underscoring the necessity for enhanced chip ware.
As new GPUs from Nvidia, Superior Micro Gadgets, Amazon, Alphabet, Microsoft, and Meta Platforms come to market, Micron sits in a profitable place to grab on the chance for rising demand for storage and reminiscence chips. To me, the long-term thesis surrounding Micron stays as compelling as ever.
Whereas every of the businesses within the peer set beneath performs a special position within the semiconductor panorama, the developments within the graph make one factor abundantly apparent: Traders are discounting Micron’s potential relative to different alternatives within the chip area.
MU PE Ratio (Ahead) knowledge by YCharts
Micron’s ahead price-to-earnings (P/E) a number of of 12 is hovering round its lowest ranges in a 12 months and pales compared to any of the corporate’s friends. I believe the sell-off in Micron inventory is unwarranted and I see the corporate’s low cost amongst main semiconductor shares as a chance to scoop up shares and put together to carry for the long term.
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John Mackey, former CEO of Complete Meals Market, an Amazon subsidiary, is a member of The Motley Idiot’s board of administrators. Randi Zuckerberg, a former director of market improvement and spokeswoman for Fb and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Idiot’s board of administrators. Suzanne Frey, an government at Alphabet, is a member of The Motley Idiot’s board of administrators. Adam Spatacco has positions in Alphabet, Amazon, Meta Platforms, Microsoft, and Nvidia. The Motley Idiot has positions in and recommends Superior Micro Gadgets, Alphabet, Amazon, Meta Platforms, Microsoft, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Idiot recommends the next choices: lengthy January 2026 $395 calls on Microsoft and brief January 2026 $405 calls on Microsoft. The Motley Idiot has a disclosure coverage.
Ought to You Purchase the Dip in Micron Inventory Proper Now? was initially printed by The Motley Idiot
