Micron ($MU) stock is down nearly 37% from the all-time high that it reached in June 2024 because the sellers are concerned about the weakness in the company’s consumer-oriented markets. I agree that it looks a bit bleak in the near term, but I still don’t think the plunge is justified. I believe that the bears are missing the bigger picture. I have been covering this stock since September 2024, and my positive outlook remains unchanged.
Micron is known for manufacturing memory storage products that are used in consumer electronics, automobiles, and even data centers. I believe the story for Micron has shifted from providing memory storage products for smartphones and PCs to becoming an important player in the data center space.
Consequently, I am bullish on Micron and see it staying relevant for several years as the world continues to build AI systems that need lots of memory. However, investors will have to be patient for this story to play out.
Sellers Are Too Focused on the Near Term
In my opinion, the sellers overreacted to Micron cutting its guidance for Q2 FY25 due to soft demand in its consumer-related end markets. The company is now expecting $7.9 billion in revenue and $1.43 in EPS (midpoint of guidance) for the quarter, while analysts were expecting $8.98 billion in revenue and $1.91 in EPS. I understand that a $1 billion difference is significant, but it’s not like the company said that it’s all downhill from here. I do not think that Micron is a fundamentally troubled enterprise.
As I alluded to above and before, my thesis for Micron is that it’s now winning on the enterprise side. This can offset any weakness in its consumer-related markets, like the one we’re seeing right now. It may still have considerable exposure to the consumer end markets but investors should not discount the enterprise vertical that the company is branching into.
Moreover, the weakness is just cyclical. There are upgrade cycles and then there are times when people postpone purchases because their old cars or electronics work just fine and the new model isn’t the best value for money for them. Management said it expects the situation in smartphones and PCs to normalize during the second half of the year, and I wouldn’t be surprised if the sellers turn into buyers by that time. Now, let’s talk about Micron’s AI opportunity, which the bears have discounted.
Micron’s Sizable AI Opportunity Should Not be Discounted
I am long-term bullish on Micron stock because of its sizable AI opportunity, as it is gaining traction in the high bandwidth memory (HBM) chips market. It’s competing directly with two South Korean companies, Samsung ($SSNLF) and SK Hynix, and is continuing to take its piece of the pie in HBM. Throughout 2024, management told investors that its data center revenue doubled nearly every quarter, and in the most recent quarter, it accounted for 50% of the company’s sales. I believe this stream is promising and will help Micron make a comeback in the long term.
Therefore, there is an opportunity for Micron to power emerging use cases in AI, such as autonomous vehicles, healthcare, sovereign AI, and even manufacturing automation. Complicated processors that need fast memory are imperative for these applications, and this is why I do not see Micron going out of fashion any time soon. As with any investment, there are risks, but I think the application space within AI for Micron’s chips is broad enough to offset the risks of some use cases failing.
Moreover, Micron’s total addressable market (TAM) in HBM is still huge, and the company is looking forward to an HBM TAM of $100 billion by 2030. That’s about six times the size of the TAM in 2024. As I said, there is a sizable AI opportunity for Micron, and it still has room to grow as it reaches its target market share of 20-25% this year. Longer term, this share could very well be larger. HBM chips are being used in Nvidia’s ($NVDA) GPUs, and we know how important those chips are today.
Is Micron Stock Cheap?
Following the overreaction, Micron is trading at a forward P/E of 13.6x and I think that’s cheap. The company’s recently found popularity among enterprise clients can help it boost profit margins in the long term if it continues to deliver products that are superior to those of its competitors and prior versions. The company’s upcoming HBM4 technology is promised to be 50% better than its predecessor. The HBM3 chips were booked in advance for 2025 and I look forward to HBM4 being equally well-received.
Although I suspect some hiccups in the near term because the bears will remain focused on the consumer-oriented markets, I see Micron’s increased focus on the enterprise as a strategic hedge for the future. Micron can go higher in the long term because it’s building better products than competitors and is winning high-ticket clients as a result. The story has changed, and if it pans out the way I expect it to, Micron won’t be as exposed to the consumer as it once was.
Therefore, we could see a sustainable turnaround in its profits, which have been hampered because people weren’t buying goods with newer technology. I would start building a position here while the stock is still available at a discount and buy more on any weakness because it is a long-term enterprise opportunity that should not be discounted.
Is MU Stock a Buy, According to Analysts?
On the Street, Micron stock sports a Strong Buy consensus rating based on 20 Buys and two Hold ratings. The average MU stock price target of $136.43 implies an upside of 37.2% from current levels.
The Bottom Line
The bears are ignoring Micron’s expanding application space with HBM and are too focused on the consumer-oriented markets. The story has changed, and I believe Micron will not be as reliant on the consumer-end markets for profits as it once was. The company’s diversification into enterprise is well-timed and can help it hedge its consumer-related business in the long term. Now is an opportune time to start building a position while MU stock is still cheap.
