S&P 500 tech stock Micron (NASDAQ: MU) is a hot investment at the moment. Believe it or not, over the last week, it’s been the third-most-bought stock on AJ Bell’s platform.
So why are investors scrambling to buy into this tech company? And should those who don’t own any shares consider buying some?
What’s going on with Micron?
Micron’s a memory chip company. And right now, demand for memory is sky high (so much so that there’s a global shortage).
The reason for this is that memory is required to run generative AI models like ChatGPT, Gemini, and Claude. Ultimately, it’s memory that allows these models to learn during training and remember the conversations they have with users.
Now, given the high demand for memory, Micron’s revenues and earnings are surging. In March, for example, the company reported Q2 revenue of $23.86bn versus $8.05bn for the same period a year ago along with non-GAAP earnings of $12.07 per share versus $1.41 a year earlier.
Looking ahead, analysts expect the growth to continue in the near term (they’re scrambling to raise their forecasts). For example, for the financial year ending 31 August, analysts expect revenue of $108.7bn versus $37.4bn last year.
This prolific level of growth is the main reason investors are piling into the stock now. But it’s not the only reason.
A cheap tech stock?
Another is the valuation. At present, Micron stock appears to be very cheap. With analysts expecting earnings per share of $57.50 for this financial year, the price-to-earnings (P/E) ratio’s only 11.1. So we appear to have growth at a reasonable price.
The share price is soaring
One other reason the stock’s grabbing a lot of attention right now is that its share price is flying. Over the last year, it’s risen around 700%. Explosive share price moves like this tend to attract a lot of ‘hot’ money. I’ve no doubt that there are a lot of ‘momentum’ investors in this name at the moment.
Can it keep rising?
Is the stock worth a look today? That’s hard to say. There’s no doubting the near-term fundamentals look very strong. Next financial year, Micron’s revenue and earnings per share are expected to rise 62% and 71% respectively.
The valuation also looks attractive. Taking next financial year’s earnings figure, the P/E ratio is just 6.5.
The problem is, at some stage, memory supply’s likely to catch up with demand. This may well lead to a slowdown in growth and potentially a drop in earnings.
When this happens, the stock could come crashing down given its recent parabolic move higher. Typically, when stocks shoot up as Micron has, they tend to experience sharp falls when conditions change.
So it really comes down to an individual’s view on the memory landscape. If you believe demand for memory will remain high in the years ahead, the stock could be worth considering.
If however, you think that supply will catch up with demand or that demand will moderate, there may be better stocks to look at given that Micron’s up 700% in a year.
