With Memory Markets Moving Toward Equilibrium, Is Micron Stock A Buy?

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MU: Micron Technology logo
MU
Micron Technology

Micron Technology (NASDAQ: MU) stock has performed relatively well this year, rising by about 22% since early January, amid optimism that the supply-demand balance in the memory markets could improve.

Now Micron’s financial performance has been tough in recent quarters. Over Q2 FY’23 (fiscal year ends August) revenues fell by 52% year-over-year, as average realized prices for both DRAM and NAND declined about 20% sequentially.  Demand from key markets, such as mobile and PCs, fell considerably, while industry supply continued to grow. Overall demand growth for 2023 is also expected to be muted, with the company forecasting approximately 5% growth for DRAM – which sees relatively inelastic demand – and a low-teens percentage growth for NAND. Micron is guiding for a 55% year-over-year drop in revenues at the mid-point for its fiscal third quarter (ending May) as well. However, the markets are looking ahead toward recovery. The memory market could see improved supply-demand balance from the second half of this year, with major manufacturers including Samsung, SK Hynix, Micron, Western Digital, and Kioxia cutting production, in a move that could help end the decline in DRAM and NAND prices. Demand for  PCs and Smartphones could also be bottoming, helping on the demand side. For perspective, PC sales declined by about 30% year-over-year in  Q1 CY’2023, per Gartner, it’s likely that things will get better in the back half of this year, as excess inventories are absorbed over Q2 CY’2023.

Now despite the recent rally, Micron stock remains down by about 35% from the highs seen in 2022. So is the stock a buy at current levels of about $61 per share?  Micron’s valuation still appears rich, with the stock trading at over 95x forward earnings.  There are also concerns about the global economy, amid high-interest rates and relatively stubborn inflation, which could weigh on consumer electronics sales, delaying the recovery in demand for memory players. There are also risks relating to Micron’s China business which accounts for roughly 10% of the company’s revenue. China began a cybersecurity review into the company’s products in the country in March, in a move that is seen as a retaliation against Micron for the U.S. policy on semiconductors. We remain roughly neutral on Micron stock with a $59 price estimate. See our analysis of Micron’s valuation: Expensive or cheap for more details.

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 Returns May 2023
MTD [1]
2023
YTD [1]
2017-23
Total [2]
 MU Return -5% 22% 178%
 S&P 500 Return -1% 7% 84%
 Trefis Multi-Strategy Portfolio -1% 7% 238%

[1] Month-to-date and year-to-date as of 5/10/2023
[2] Cumulative total returns since the end of 2016

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