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It’s honest to say that Nasdaq chip inventory Micron (NASDAQ: MU) is sizzling proper now. Over the past yr, it has surged about 350% amid an AI-related reminiscence ‘supercycle’.
Now, I’ve utterly missed out on these explosive good points sadly. Might the tech inventory nonetheless be value shopping for for my ISA although?
Blowout earnings
Final night time (18 March), Micron posted its earnings for the second quarter of its fiscal 2026 yr. And so they blew the doorways off Wall Avenue expectations.
For the quarter, income got here in at a file $23.86bn, up 196% yr on yr. In the meantime, adjusted earnings per share got here in at a file $12.20 – miles forward of the consensus forecast of $9.31 – versus $1.56 a yr earlier (+682% yr on yr).
Commenting on the earnings, CEO Sanjay Mehrotra mentioned: “Within the AI period, reminiscence has grow to be a strategic asset for our clients.” He added that the corporate expects “vital information once more in fiscal Q3.”
Zooming in on the steering, the corporate mentioned that for Q3, it expects income of $33.5bn plus or minus $750m (implying year-on-year progress of over 250%) and diluted earnings per share of $19.15 plus or minus $0.40. Analysts had been anticipating $12.05 in earnings per share on $24.3bn in income so this steering was approach above estimates.
The inventory nonetheless appears to be like low cost
So clearly, Micron is benefitting from the AI growth. What’s taking place is that demand for reminiscence is surging because of excessive demand for GPUs made by the likes of Nvidia, which require reminiscence to energy generative AI fashions.
What’s fascinating is that the inventory nonetheless appears to be like actually low cost. At the moment, it trades on a forward-looking price-to-earnings (P/E) ratio of simply 7.3 utilizing subsequent monetary yr’s earnings forecast (which can go up given the momentum the corporate has proper now).
Observe that a number of Wall Avenue companies have raised their worth targets for the inventory after final night time’s earnings. Each JP Morgan and TD Cowen are concentrating on $550 – about 24% greater than the present share worth.
What are the dangers?
Nevertheless, whereas there’s lots to be enthusiastic about right here, there are fairly a number of dangers. One is that the reminiscence enterprise is cyclical.
So, whereas Micron’s revenues are surging proper now, issues may shortly change. Observe that in 2016, 2019, and 2023, Micron’s revenues plummeted yr on yr.
Within the close to time period, the AI growth ought to help demand. But when Large Tech corporations cease spending on Nvidia’s GPUs, issues may get ugly.
One other challenge is that Micron simply instructed traders that capital expenditures will “step up meaningfully” in fiscal 2027 with construction-related prices rising by over $10bn. This sort of capex may hit earnings.
In fact, after a 350% rise within the share worth during the last yr (the chart is parabolic and that scares me), there’s at all times the prospect of some revenue taking in some unspecified time in the future (perhaps even at the moment). That is one other threat to contemplate.
My transfer now
Placing this all collectively, I’m not going to purchase Micron inventory but. I must do some extra analysis.
I wish to get a greater thought of long-term demand for reminiscence. I additionally wish to study extra in regards to the firm’s aggressive benefit.
