Micron (NASDAQ: MU) stock has been a standout performer recently. Year to date, it’s up around 300%.
Own the chip stock or thinking about buying it for your ISA or SIPP? Here are three things to know.
Q3 earnings are this week
First, let’s talk about Micron’s Q3 earnings. These will be posted after the closing bell on Wednesday 24 June.
Now, we can expect these to be strong because demand for memory chips is off the charts at the moment. Micron announcing recently that it is sold out of high-bandwidth memory for the remainder of this calendar year.
In terms of specific numbers, here’s the Q3 guidance that the company provided last quarter:
Note that in Q3 last financial year, revenue was $9.3bn while non-GAAP diluted earnings per share (EPS) was $1.91. So we are looking at revenue growth of around 270% and EPS growth of around 900%, which is incredible.
I’ll point out that if Micron misses these guidance figures, or its guidance for Q4 is weak, the stock will most likely fall. I think there’s a good chance that the company will beat these forecasts and raise its guidance, given the high demand for memory chips from hyperscalers.
Looking beyond the numbers, investors will be focused on Micron’s spending plans as the company is spending heavily to increase production capacity. They’ll also be focused on contract negotiations – recently memory companies have been locking in longer-term contracts to reduce demand volatility.
Analysts are raising their price targets
Another thing to know about Micron is that analysts are aggressively increasing their price targets at the moment. Here are some increases over the last week or so:
- Deutsche Bank: $1,000 to $1,500
- Citi: $840 to $1,200
- Stifel: $550 to $1,550
- Wedbush: $500 to $1,300
- Bernstein SocGen: $510 to $1,300
- TD Cowen: $660 to $1,500
Almost all of those targets are higher than the current share price. In other words, analysts expect the rally to continue.
The stock still looks cheap
Finally, the valuation is still low. With analysts forecasting earnings per share of $115 for the financial year starting in September, the forward-looking price-to-earnings (P/E) ratio is only around 10.
It needs to be stressed that that $115 figure is just an estimate. There’s no guarantee that Micron’s earnings will be that high.
Will I buy?
Despite this low valuation, and the bullish broker sentiment, I’m not a buyer of the stock today. I’m just not sure about the demand backdrop.
Demand for memory chips could stay high for years. Alternatively, we could just be looking at a short-term bottleneck at the moment.
Another thing that spooks me here is the share price chart. It’s parabolic.
I’ve seen plenty of charts like this in my 25 years of investing and they often reverse sharply at some point. So, I think buying now would be risky.
Given the uncertainty in relation to demand and the chart, I’m going to focus on other stocks in the tech space. I’m looking for companies where long-term revenue growth is nearly guaranteed.
Should you invest £5,000 in Micron Technology right now?
When investing expert Mark Rogers and his team have a stock tip, it can pay to listen. After all, the flagship Twelfth Magpie Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.
And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Micron Technology made the list?
Edward Sheldon does not hold any positions in the companies mentioned.
