Micron (NASDAQ:MU) isn’t a Magnificent Seven member, but it’s definitely a hot name in tech. Before jumping into a hasty trade, though, you’ll want to consider whether Micron shares are overpriced. Even though I like Micron’s future prospects, I am neutral on MU stock and would prefer to take a share position at a lower price.
Micron is a memory-chip manufacturer, and of course, the company produces memory chips that can accommodate generative artificial intelligence (AI) applications. Micron’s chips can be found in PCs, smartphones, servers, and even cars.
Until recently, MU stock was in a two-year dip that started in early 2022. Then, Micron released its latest round of quarterly results, and suddenly, Micron is a market darling and possibly the “next” Nvidia (NASDAQ:NVDA). Thus, it’s an “obvious” trade to buy Micron stock now – but then, when anything in the financial markets appears obvious, that’s the time for investors to be cautious.
Suddenly, Micron Is an AI Hardware Superstar
The market knows that Nvidia is a major beneficiary of the gen-AI boom. That’s why NVDA stock rallied so sharply during the past year. So, if you “missed the bus” with Nvidia stock, you may be on the hunt for the “next” AI hardware superstar — and Micron seems to fit the bill.
Micron President and CEO Sanjay Mehrotra makes no bones about his company’s AI-market connections. He declared, “We believe Micron is one of the biggest beneficiaries in the semiconductor industry of the multi-year opportunity enabled by AI.”
Part of Mehrotra’s job is to be a hype man for Micron. His statement about Micron being “one of the biggest beneficiaries” of AI would have been more impactful if an independent analyst had said it. On the other hand, the data does appear to back up the CEO’s confident attitude.
After all, it’s hard for the skeptics to argue with Micron’s exceptional results in the second quarter of Fiscal Year 2024. Impressively, Micron generated $5.824 billion in quarterly revenue, up 57.7% compared to $3.693 billion in the year-earlier quarter. Furthermore, that result came in solidly above Micron’s previous projection of $5.3 billion in revenue.
Turning to the company’s bottom line, Micron reported Q2-FY2024 net income of $0.42 per share. That’s a remarkable achievement, considering that Micron posted a net loss (not income) of $1.95 per share in the year-earlier quarter. Moreover, Wall Street’s consensus estimate called for Micron to report a net loss of $0.25 per share, and Micron expected to lose $0.28 per share. So, this was a surprise profit in many ways.
Micron Stock: Are Today’s Traders Chasing It?
Given the aforementioned data points, it’s understandable that MU stock is moving higher. After all, the market likes nothing more than a positive surprise. At the same time, prudent investors should remember that chasing stocks isn’t necessarily an ideal strategy.
For one thing, Micron has set a high bar to clear. For the current quarter, Micron expects to generate revenue of $6.6 billion plus or minus $200 million. That’s higher than the analyst consensus estimate of $5.98 billion. Now, Micron has the challenging task of achieving its own goal; otherwise, investors may be disappointed.
Also, Micron may be overly dependent on the generative AI boom. Mehrotra noted “robust price increases” for Micron’s products amid “strong AI server demand.” There’s no guarantee that this trend will persist at the same rapid pace in the coming quarters, though.
Nevertheless, some analysts are strongly optimistic about Micron’s near-term growth prospects. For example, Cantor Fitzgerald analyst C. J. Muse hiked his MU stock price target from $120 to $135. Muse remarked, “Expectations were high, but Micron certainly delivered the goods.”
Were the expectations high, though? Bear in mind, both the company and the analyst community expected Micron to post a per-share net loss in Q2 FY2024. Now, financial traders generally have high hopes for Micron, and they’re chasing the stock higher.
Is Micron Stock a Buy, According to Analysts?
On TipRanks, MU comes in as a Strong Buy based on 24 Buys, one Hold, and one Sell rating assigned by analysts in the past three months. The average Micron stock price target is $126.45, implying 5.6% upside potential.
If you’re wondering which analyst you should follow if you want to buy and sell MU stock, the most accurate analyst covering the stock (on a one-year timeframe) is Timothy Arcuri of UBS (NYSE:UBS), with an average return of 40.34% per rating and a 73% success rate. Click on the image below to learn more.
Conclusion: Should You Consider Micron Stock?
Even after a surprise quarterly profit, it’s difficult to properly assign a valuation to Micron. The company still doesn’t have a positive trailing 12-month price-to-earnings (P/E) ratio. Most importantly, it feels like short-term traders are chasing Micron stock and hoping that the company’s future results meet everyone’s expectations.
That’s a potential recipe for disappointment. Therefore, I’m staying neutral on MU stock and not considering buying it now. Instead, I’d like to see the stock pull back 20% or even 30% in order to get a better margin of safety.
