After a massive move higher over the last year (around 750%), Micron (NASDAQ: MU) stock has pulled back recently. As I write this on Friday (12 June), it’s about 9% below its highs.
Should I buy the dip and add the stock to my ISA? Let’s weigh up the bull case versus the bear case.
Exploring the bull case
The upbeat case for Micron is multi-faceted. For a start, we have the fact that demand for the company’s memory chips is sky-high today.
It’s so high that Micron is actually sold out for the rest of 2026. Note that this high level of demand is giving it more pricing power than it has had in the past.
Second, the company is negotiating longer-term supply agreements with customers. This is another major positive.
In the past, demand for memory chips has been highly cyclical. These long-term agreements should help to mitigate cyclicality.
Third, revenue and earnings growth is incredible. Last quarter, for example, revenue and earnings per share (EPS) were up 195% and 756%, respectively.
For the year ending 31 August, revenue and EPS are expected to be $110bn and $58.50. That compares to $37bn and $8.29 last financial year.
Fourth, we have a relatively low valuation. Taking that earnings forecast above, we get a price-to-earnings (P/E) ratio of just 17.
Finally, analysts are aggressively increasing their price targets for the stock. UBS, for example, just went to $1,625.
Overall, there are many reasons to be bullish.
Bear case risks
In terms of the base case, this mainly revolves around the fact that history shows that at some stage, demand for memory chips will moderate and/or supply will catch up with demand. If either of these scenarios were to materialise, the company’s financial momentum could deteriorate quickly.
In the past, this company has had some major downturns in revenue and earnings when demand has cooled. In 2023, for example, revenues fell around 50% while earnings went negative.
It’s worth pointing out here that it looks like demand will remain high in the short term. Next year, hyperscalers are projected to spend over $1trn on AI infrastructure so this should support demand.
Taking a long-term view, however, there’s considerable uncertainty. My colleague Stephen Wright believes that there’s a good chance that demand will moderate between now and 2030 and that Micron’s share price will fall back to $500.
Speaking of the share price, another factor within the bear case is the pace of its recent rise (the chart is parabolic). Ultimately, it’s not normal for a large-cap stock to rise 750% in a year like Micron has.
When stocks rise like this, they often fall sharply at some stage for one reason or another. In this case, I think there’s a fair bit of speculative capital in the stock that could be tempted to exit if another exciting opportunity came along (like the Anthropic IPO).
Better opportunities?
Weighing everything up, I’m not going to buy Micron stock for my portfolio right now. I just see too much risk here given the share price spike over the last year.
I’m going to focus on other stocks in the growth space. Because there are lots of great opportunities to consider out there today.
Should you invest £5,000 in Micron Technology right now?
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Edward Sheldon does not hold any positions in the companies mentioned
