Is Micron Stock a Buy Despite Its Post-Earnings Drop?

With a market capitalization of $115.7 billion, Micron Technology (MU) has long been a major player in the semiconductor industry, focusing on memory and storage solutions. Micron, like most semiconductor companies, has benefited from the widespread adoption of artificial intelligence (AI). 

The company reported its quarterly results on Dec. 18, and despite year-over-year growth in revenue and net income, investors have been selling off shares. The negative reaction is due to concerns over its weak guidance for the coming quarter. 

However, this may be missing the bigger picture. MU is a strong stock with continued potential into the new year.

Micron manufactures dynamic random access memory (DRAM), non-volatile memory (NAND), and other technologies used in a variety of applications, including data centers, mobile devices, automotive systems, and AI platforms. While its products are popular, it operates in a highly cyclical industry. 

Micron Reports Q1 Results 

In the first quarter of fiscal 2025, total revenue increased by an impressive 84.1% to $8.7 billion. According to management, this growth was fueled by strong demand for memory products in data centers and the adoption of high-bandwidth memory (HBM).

In fact, data center revenue increased 400% year-over-year, accounting for 50% of its total revenue for the first time. 

Micron's advancements in HBM technology have established it as a market leader in this rapidly expanding segment. The company's HBM3E 8-high products have been integrated into Nvidia's (NVDA) Blackwell B200 and GB200 platforms, demonstrating Micron's ability to meet the demands of AI-driven workloads. 

Management believes the HBM market will grow rapidly over the next few years, exceeding $100 billion in total addressable market by 2030. The company expects the consumer-oriented market to be weaker in the second quarter but to recover by the second half of fiscal and calendar 2025.

The company reported adjusted diluted earnings of $1.79 per share, an improvement from a loss of $0.95 per share in the year-ago quarter. The company’s gross margin of 39.5%, up 0.8% from the year-ago quarter, reflects operational efficiencies and a favorable pricing environment. Micron has also received $6.1 billion as part of the CHIPS Act to construct advanced DRAM manufacturing facilities in Idaho and New York. 

Micron generated free cash flow of $112 million, allowing it to invest in research and development and return to shareholders through dividends while maintaining a healthy balance sheet. It ended the quarter with $8.75 billion in cash, marketable investments, and restricted cash. Its debt-to-equity ratio stands at 0.3x. Micron also pays a dividend with a forward yield of 0.53%, compared to the tech sector's average of 1.37%. However, its low payout ratio of 5.2% suggests there is a lot of room for dividend growth. 

The company expects revenue to increase by approximately 35.7% to $7.9 billion in the second quarter (plus or minus $200 million). It also predicts earnings per share of $1.43 (plus or minus $0.10), a year-over-year increase of around 240.5%. 

The company did not provide any guidance for the full fiscal year 2025. Analysts who cover Micron's stock expect revenue to increase by 40% in fiscal 2025, followed by another 30% in fiscal 2026. Earnings per share could increase by an impressive 465% to $7.34 per share in 2025.

Is Micron Stock a Buy Now?

Overall, on Wall Street, Micron stock holds a “Strong Buy” rating. Out of the 29 analysts covering MU stock, 25 have rated it a "Strong Buy," two suggest a “Moderate Buy,” one rates it a “Hold,” and one recommends a “Strong Sell.”

The stock’s average target price of $149.37 implies 72% upside potential from current levels. Furthermore, its high target price of $250 suggests the stock could gain as much as 188% over the next 12 months.

Valued at 12x forward fiscal 2025 earnings estimates, Micron stock is cheaper compared to its peers. Nvidia is expensive at 44 times forward 2025 earnings. 

The semiconductor industry is experiencing exceptional demand driven by digital transformation, AI, and the Internet of Things (IoT). Micron's products play an important role in enabling these innovations. As a result, I believe the company has excellent long-term prospects for patient investors willing to bear the cyclical risks.

www.barchart.com