Important points
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Many tech stocks related to artificial intelligence soared on hopes of future orders.
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However, even if these orders are successful, sales and profits will not increase until the company delivers.
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For certain stocks in particular, this phenomenon offers great potential for future growth.
- 10 stocks we like better than Micron Technology ›
Artificial intelligence is prompting companies to make huge capital investments. Much of that funding will go to companies that make the essential components of the hardware that runs AI-powered applications and leverages the data needed to generate the most valuable insights. For companies that specialize in manufacturing these components, any news boasting new multibillion-dollar investments in AI is cause for celebration.
micron technology (NASDAQ:MU) has positioned itself to do just that as a key supplier of memory chips for AI hardware, and yesterday we published the first article in this series about Micron. voyager portfolio We looked at the company’s inspiring history and rise to the top of the tech industry. Today, you’ll learn more about Micron’s financial results and why the best is still far in the future.
Will AI create the world’s first millionaire? Our team published a report on one little-known company called an “essential monopoly” that provides critical technology needed by both Nvidia and Intel. Continued “
Image source: Getty Images.
Two perspectives for Micron to reach even higher heights
One of the things investors can learn a lot from Micron’s earnings results is that there are big differences when you start comparing. Both of the following stories are completely true, but they paint very different pictures of Micron’s growth.
- Over the past 12 months, Micron’s revenue has nearly tripled over the company’s fiscal year 2023. The semiconductor memory chip maker posted net income of $11.9 billion over the past four quarters, up from a massive $5.8 billion loss three years ago. Profit margins have exploded.
- Micron’s sales have increased just under 40% since the company’s strong 2022 fiscal year. Operating margins and profit margins have only recently returned to the same levels as four years ago, and while the 37% increase in net income is solid, it appears out of proportion to the strong share price growth over the same period.
The way to reconcile these two views is to understand that, historically, Micron’s memory chip business has followed the ups and downs of technology business cycles. Micron’s chips are in high demand at certain times, and the prices of the chips it can produce are high, so Micron will invest in increasing its production capacity. However, with the surge in demand, a softening of Micron’s component market is inevitable. At that point, sales could take a big hit, as we saw in the 2022 bear market. Therefore, it is important to measure peak-to-peak or trough-to-trough when comparing Micron’s recent results with older numbers. At the very least, avoiding incongruent comparisons will help you avoid embarrassing miscalculations about what will happen in the future.
The supply shortage is here
But what’s different now is how long Micron can maintain its cyclical uptrend. Micron said on its recent quarterly conference call that it has already closed contracts for the entire supply of high-bandwidth memory for the 2026 calendar year, with set price and volume terms. CEO Sanjay Mehrotra now expects the overall addressable memory market to nearly triple in size, from $35 billion in 2025 to $100 billion in 2028. Micron originally thought it would take until 2030 for the memory market to grow this much, but it recently predicted it would outstrip the entire dynamic random access memory market by 2024.
The financial growth Micron has seen so far could be just the tip of the iceberg if it can begin to capitalize on strong supply and demand dynamics and assert pricing power more effectively. Third and last article in this article voyager portfolio Micron’s series will take a closer look at the technology pioneer’s strategic growth plans and whether they justify the huge rally in memory chip stocks.
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Dan Caplinger has no position in any stocks mentioned. The Motley Fool has a position in and recommends Micron Technology. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
