Growth and value

A classic example of a stock market cycle is the shift from growth to value and back. The core structure’s pretty straightforward. Investors naturally look for growth stocks. But then something happens that reminds them these things are supposed to have valuations.

Rising interest rates are a good candidate. So investors go looking for companies with stronger current cash flows. These are value shares. But sooner or later, investors realise these businesses don’t grow much and go back to growth stocks. And so on… 

The best way to invest is by doing the opposite of what everyone else is up to. And the situation in the US is interesting right now.

Artificial intelligence 

The rise of artificial intelligence (AI) has had a big impact on tech. But while software has faltered, other names have done well. One of these is Micron (NASDAQ:MU). Quarterly sales are up 200% and the share price has climbed 555% in the last year.

Analysts are expecting strong earnings per share (EPS) growth for the next few years. But investors do need to be careful. 

Source: Nasdaq.com

Those earnings are important. But a discounted cash flow (DCF) analysis shows that they’re not the only thing that matters. A DCF calculation shows the present value of those projected earnings. Using a 9% discount rate, they look like this: 

Together, they make up less than half of the current share price. So what happens after the next three years matters much more. 

Long-term investing

Micron’s clearly benefitting from a cyclical boost. But the question is what happens when that changes?

Sales also surged during the pandemic. When things normalised though, profits turned negative. The stock fell more than 50% as a result. And I think there’s a decent chance something similar happens again.

That wouldn’t matter if the short-term earnings boost was enough to justify the current price by itself. But it isn’t. At today’s prices, there needs to be more than just a big cyclical boost coming. Otherwise the stock looks too expensive. 

AI might mean higher long-term demand for memory chips. But, in Micron’s case at least, this is already priced in.

Foolish conclusion 

Micron’s average annual EPS over the last 10 years has been around $7. But that isn’t enough to justify a $456 share price. Assuming a 4% terminal growth rate, that’s $81 in present value. Added to $205 for the next three years, that’s well below the current price.

That means investors need AI to be more than a short-term surge in demand. It needs to be a permanent change.

The current share price implies around $22 in normalised future EPS. That’s a big increase. Given this, I think there are more compelling opportunities right now. But I’m expecting a better chance at Micron when things look less positive.

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So what’s driving it, and is there still a case to be made at current levels?

The new Intel?

Think about what actually happens when a hyperscaler upgrades its servers. It’s not just buying a new Nvidia GPU. The memory’s physically attached to the die, so new hardware means new Micron chips too.

The upgrade cycle and the memory cycle are the same cycle.

That’s a remarkably strong position to be in. It’s reminiscent of where Intel sat in the 1990s — not because the businesses are identical, but because both companies found themselves embedded so deeply into the prevailing technology stack that growth elsewhere in the industry translated almost automatically into growth for them. Intel rose 7,000% over that decade. 

A noteworthy pullback

Last month, Google announced TurboQuant — an algorithm designed to reduce memory requirements for AI workloads by up to a factor of six. Memory stocks fell sharply. The market read it as a demand killer.

It probably isn’t. The same logic was applied to DeepSeek’s efficiency gains last year, and what followed was more compute spending, not less. When you can do more with less, developers tend to simply do more. The Jevons paradox has a habit of making itself relevant.

Valuation looks even better today

This is where it gets genuinely interesting. On a forward non-GAAP price-to-earnings basis, Micron trades at around 6.3 times — versus a sector median of 21.8 times. That’s a discount of roughly 71%.

The forward price-to-earnings-to-growth (PEG) ratio sits at 0.05, against a sector average of 1.32. Across almost every metric, Micron screens as one of the cheapest large-cap technology companies in the market.

The issue is the sustainability of earnings. Due to a shortage, memory prices have surged. And this is why some analysts see Micron’s earnings falling from 2027 to 2028.

With the company spending billions on new factories and capacity, the question is whether higher volume can offset moderating prices. Some will highlight that the sector has been very cyclical in the past. I’d suggest that cyclicality may not be an issue with AI.

What if it’s still cyclical?

As noted, the current cycle’s being supercharged by AI infrastructure spending at a scale the industry has never seen — customers are locking in supply years out, which itself signals how tight things are.

Some analysts argue that, at some point, capex from the hyperscalers moderates, and when it does, the memory market will feel it.

As such, appropriate position-sizing matters here.

For what’s its worth, I disagree with this thesis. Memory’s soldered into servers and GPUs and typically lasts the life of the hardware. The replacement cycle will reflect that.

I think institutional analysts agree — the price target’s 40% above the current price.

The bottom line

It’s absolute worth considering. The valuation discount is too large to ignore for a company that sits at the centre of the AI infrastructure build-out. The sell-off looks like an overreaction.

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Now, I’ve completely missed out on these explosive gains sadly. Could the tech stock still be worth buying for my ISA though?

Blowout earnings

Last night (18 March), Micron posted its earnings for the second quarter of its fiscal 2026 year. And they blew the doors off Wall Street expectations.

For the quarter, revenue came in at a record $23.86bn, up 196% year on year. Meanwhile, adjusted earnings per share came in at a record $12.20 – miles ahead of the consensus forecast of $9.31 – versus $1.56 a year earlier (+682% year on year).

Commenting on the earnings, CEO Sanjay Mehrotra said: “In the AI era, memory has become a strategic asset for our customers.” He added that the company expects “significant records again in fiscal Q3.”

Zooming in on the guidance, the company said that for Q3, it expects revenue of $33.5bn plus or minus $750m (implying year-on-year growth of over 250%) and diluted earnings per share of $19.15 plus or minus $0.40. Analysts had been expecting $12.05 in earnings per share on $24.3bn in revenue so this guidance was way above estimates.

The stock still looks cheap

So clearly, Micron is benefitting from the AI boom. What’s happening is that demand for memory is surging as a result of high demand for GPUs made by the likes of Nvidia, which require memory to power generative AI models.

What’s interesting is that the stock still looks really cheap. Currently, it trades on a forward-looking price-to-earnings (P/E) ratio of just 7.3 using next financial year’s earnings forecast (which may go up given the momentum the company has right now).

Note that several Wall Street firms have raised their price targets for the stock after last night’s earnings. Both JP Morgan and TD Cowen are targeting $550 – about 24% higher than the current share price.

What are the risks?

However, while there’s a lot to be excited about here, there are quite a few risks. One is that the memory business is cyclical.

So, while Micron’s revenues are surging right now, things could quickly change. Note that in 2016, 2019, and 2023, Micron’s revenues plummeted year on year.

In the near term, the AI boom should support demand. But if Big Tech companies stop spending on Nvidia’s GPUs, things could get ugly.

Another issue is that Micron just told investors that capital expenditures will “step up meaningfully” in fiscal 2027 with construction-related costs rising by over $10bn. This kind of capex could hit profits.

Of course, after a 350% rise in the share price over the last year (the chart is parabolic and that scares me), there’s always the chance of some profit taking at some point (maybe even today). This is another risk to consider.

My move now

Putting this all together, I’m not going to buy Micron stock yet. I need to do some more research.

I want to get a better idea of long-term demand for memory. I also want to learn more about the company’s competitive advantage.

The post Should I buy Nasdaq stock Micron for my ISA after blowout Q2 earnings? appeared first on The Motley Fool UK.

“A perfect growth stock sells a differentiated product into a fast-expanding market, shows strong demand and scalable economics, holds a defensible moat, has disciplined leadership and a solid balance sheet, and trades at a valuation that still leaves room for upside as margins and cash flow improve over time”.

It’s obviously pretty hard to argue with this description although, in reality, it’s relatively subjective.

So then I asked it: “What company fits this description?”

The answer was phenomenally easy to predict. It said Nvidia.

And it’s hard to disagree. The stock’s a core part of my portfolio — now up nearly 200% on a weighted cost average. It’s got a great balance sheet, it makes a differentiated product that’s proving very hard to compete with, and the valuation remains, in my opinion, attractive.

As I write, it trades at 40 times forward earnings, but with a price-to-earnings-to-growth (PEG) ratio of 1.15. That’s a 30% discount to the sector average, suggesting it may be considerably undervalued.

How to find growth stocks

In recent years I’ve become increasingly aware that Britons pick their growth stocks largely on a hunch. There might be some reasoning behind that hunch, such as it has the best smart phone product or car tech.

However, finding growth stocks should really start with screening. It’s about finding the valuation data for a stock and assessing whether it looks good value versus its growth potential.

Another strong pick?

Nvidia was a great example, but let’s look at something else. One stock I really like is Micron Technology (NASDAQ:MU).

Micron makes two types of memory: DRAM, including HBM (High Bandwidth Memory), which provides ultra-fast, real-time data feeding to AI chips; and NAND, which stores data more cheaply but more slowly. For artificial intelligence (AI), DRAM/HBM is crucial, because model performance depends on bandwidth, not storage.

Luckily, Micron’s a world-leader here.

But it’s also not overly expensive. There’s certainly some hesitancy from the market because memory’s traditionally been quite cyclical. That’s no longer the case, at least in my view, with AI representing a very secular trend.

Currently the stock’s trading at 14.3 times forward earnings (P/E), which is a 37% discount to the sector average. The price-to-earnings-to-growth (PEG) ratio, which is the P/E ratio divided by the medium-term average growth rate, is just 0.22.

These are clear signs of undervaluation.

The balance sheet? $5bn in net debt. It might sound like a lot but that’s small-fry for a company with a market-cap of $271bn.

However, I appreciate that there are other companies in this sector, and Micron’s by no means the largest player. It’s also true that large language models could develop to use less bandwidth, which could hurt Micron’s demand.

Nonetheless, I believe this is a top growth stock, well worthy of consideration.

The post I asked ChatGPT to describe the perfect growth stock! Here’s what it said… appeared first on The Motley Fool UK.

To kick things off, the government’s top-up is simply too good to waste. A junior SIPP allows contributions of £2,880 a year, and HMRC automatically boosts that to £3,600. That 25% uplift is instant, guaranteed, and available every single year in the form of 20% tax relief.

Then there’s the power of time. The £5,500 already invested has over 50 years to compound. If it grew at 9.6% — the average growth of UK Stocks and Shares ISA over the past decade — over the next 50 years — without any further contributions — it’d be worth £665k at the end of the period.

Add ongoing contributions — even small ones — and the eventual numbers become genuinely life-changing. Add £320 a month and that end figure become £5.4m.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

There’s also a softer motivation that matters just as much. The world’s expensive. Housing, education, and the sheer unpredictability of adult life create pressures that didn’t exist a generation ago.

What’s more, there’s artificial intelligence (AI) to think about. Elon Musk said the other day that work will become optional in the coming decades as humanoid robots do the heavy lifting… sounds great, but how are the next generations going to earn money?

Knowing there’s already a quiet, growing financial seed planted for the future brings real peace of mind. It’s an early gift. It’s not just money, but breathing room.

Finally, it sets a tone. One day this child will ask why a pension appeared before memories did. It’s about setting the standard for long-term thinking and financial planning.

So yes, a two-year-old with a £5.5k SIPP’s unusual. But maybe it’s something more people should consider.

Where to invest?

The most recent addition to the SIPP is Micron (NASDAQ:MU). The company makes memory and storage solutions, including DRAM, and NAND, which are used in everything from personal computers and smartphones to data centres and automotive applications.

The most important part of this portfolio is DRAM, and specific high-bandwidth memory (HBM). Micron leads due to advanced process technology, scale, and reliability. And these are crucial for AI.

However, the company’s still valued like a cyclical stock — memory used to be very cyclical. And I don’t think that’s the case anymore, because of AI. This is what CFO Mark Murphy said at the Global Technology Conference:

“Data centre demand, which includes a lot of our highest value products, is especially strong. All other markets are also healthy. We expect growing AI demand to drive a multi-year data center buildout globally.”

While the stock has surged in recent years, I think the market still needs to readjust. It’s trading at 13 times forward earnings and with a price-to-earnings-to-growth (PEG) ratio of 0.2.

There are still risks. Peers could catch up technologically. AI could develop to use less HBM. However, from what we see today, I think it’s a stock worth considering.

The post Here’s why my 2-year-old has a £5.5k SIPP! appeared first on The Motley Fool UK.

Let’s take a closer look.

Supportive trends

Micron’s shares are up 81% over 12 months. This has been driven by earnings growth which, in turn, has been driven by soaring demand for high-bandwidth memory and next-generation SSDs (Solid State Drives) essential for large model training, inference, and data lake management. In other words, AI is a huge supportive trend.

The firm’s HBM3E and HBM4 products, offering power efficiency and enormous bandwidth, drive adoption in Nvidia and AMD AI accelerators, while new DDR5 modules and LPDDR5X cater to both data centre and edge AI devices.

Now, what I find particularly interesting is that the memory business has typically been cyclical. However, the current wave of AI demand is fundamentally altering this pattern, as cloud providers and data centre operators seek more frequent, large-scale upgrades to high-bandwidth DRAM and advanced NAND solutions to keep up with rapidly advancing AI workloads. 

Another factor in the intensity of AI workloads. Historically, these memory chips can last a long time, but memory chips in AI servers could wear out much faster (one to three years). This means more frequent replacement cycles and less cyclical demand.

What’s more, while Micron isn’t the biggest player in memory chips, it’s possibly the best positioned for AI.

The numbers are the exciting bit

This is all great, but if Micron were trading at 50 times forward earnings and only offered 20% annualised growth in the coming years, it wouldn’t be worth considering — well, not for me anyway.

However, that’s not the case. The stock trades at 11.5 times forward earnings. That’s a 63% discount to the information technology sector average. That alone suggests some form of mis-pricing.

Then, there’s the price-to-earnings-to-growth (PEG) ratio. This is the forward price-to-earnings (P/E) ratio (11.5) divided by the average expected earnings growth rate for the medium term (65.8%).

The PEG figure we’re left with is 0.18. That’s a huge 90% discount to the sector average. It might be a little distorted, but the underlying numbers still point to a huge undervaluation.

For context, earnings per share are expected to rise from around $8.29 last year to $16.63 this year. It then moves to $18.90 in 2027, representing further strong growth.

Analysts remain somewhat uncertain about what happens next. One risk is that my assumption — that this marks the end of the company’s cyclical nature — could prove incorrect. The share price would likely take a major hit if AI demand turns out to be cyclical, much like what happened in consumer electronics with PCs and smartphones.

Personally, however, I believe the data suggests it’s a stock worth considering.

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Assuming a withdrawal rate of 5%, the maths is straightforward: an investor would need around £800,000 inside their Stocks and Shares ISA. At this level, a diversified portfolio could realistically produce the target income without running the risk of exhausting capital too early.

Reaching £800,000

The challenge, of course, lies in getting there. With the ISA allowance currently £20,000 a year, reaching £800,000 might sound daunting, but compounding can make the journey more achievable than many realise.

For instance, investing the full allowance annually into a portfolio delivering 7% average returns could grow to around £820,000 in 20 years. That’s assuming reinvested dividends and no withdrawals.

This shows the power of discipline and long-term compounding. Even starting from zero, consistent contributions combined with market growth can build serious wealth over a couple of decades.

Of course, not everyone can max out their ISA each year, but smaller contributions still add up. Investing £10,000 annually with the same 7% return would reach around £410,000 in 20 years — enough to generate roughly £20,000 a year at 5%.

It all depends on our personal situation. Personally, I’m a little further into my investment journey, and my returns are typically very strong. Here’s what I’m looking to achieve in graph form in the 23 years until I’m 55.

However, building towards £800,000 may require patience, consistency and a sensible investment strategy, but the numbers demonstrate it’s within reach. It is though, not without its risks. Investors can lose money, especially if they make poor decisions.

Can Micron power growth?

A good portfolio mixes the need for diversification with conviction. One stock I’m particularly fond of at the moment is Micron Technology (NASDAQ:MU). The memory-chip specialist is one of just a handful of companies globally that can produce the DRAM and NAND flash memory needed to power cloud computing, smartphones and, most importantly, the surge in artificial intelligence (AI).

Micron trades on a forward price-to-earnings ratio of around 20, which looks undemanding given consensus forecasts for earnings to grow more than 500% this year and continue rising strongly into 2026.

While the group carries $16.2bn in debt, it also has $10.8bn in cash, leaving a modest net debt position relative to its $182bn market-cap. This gives it scope to invest aggressively in new capacity while maintaining balance-sheet flexibility.

The risks shouldn’t be ignored. Memory pricing remains cyclical, meaning profitability can swing dramatically. Overcapacity or weaker AI demand could easily derail earnings forecasts. However, for investors willing to tolerate volatility, Micron offers rare exposure to one of the most powerful technology trends of the decade. It’s definitely worth considering.

The post How much money do I need in an ISA to earn a £40,000 passive income at 55? appeared first on The Motley Fool UK.

But what companies should investors be looking at this October? Here are some of my ideas for consideration.

Micron Technology

Micron Technology (NASDAQ:MU) is a leading player in memory and storage solutions, and its fortunes are closely tied to the semiconductor cycle. The stock currently trades on a forward price-to-earnings of under 20, which looks appealing given forecasts for strong earnings growth over the coming years.

Demand for AI-driven data centres and high-bandwidth memory is helping drive Micron’s recovery after a difficult period of oversupply. While net debt sits at $7.6bn, the balance sheet remains manageable relative to future cash flow prospects.

Risks include the inherent cyclicality of memory markets and potential trade tensions, but Micron looks well placed to benefit from structural growth in AI and cloud computing. This makes it an attractive ISA candidate for long-term investors.

Pinterest

Pinterest offers exposure to the digital advertising sector but with less volatility than many rivals. Monthly active users hit 578m in Q2, with Gen Z now the fastest-growing cohort. Monetisation is improving through AI-powered ad tools and AI is also supporting efficiency drives within the company.

Trading at under 20 times forward earnings, the stock isn’t cheap but offers long-term growth potential. Investors should note that rising costs could weigh on margins. Despite positive price action in the past six months, analysts still suggests it’s undervalued by around 25%.

Jet2

Jet2 (LSE:JET2) shares have really pulled back over the past month. The stock surged from its lows after Trump’s Liberation Day, but investors have been spoked by late booking patterns.

For airlines like Jet2, the timing of customer bookings is critical: strong forward bookings provide visibility on revenue and help manage costs, while a surge in last-minute bookings can signal uncertainty in demand.

Late booking trends can also make it harder to optimise pricing and capacity, increasing operational risk. For investors, understanding these patterns is essential, as they can materially affect quarterly results and the stock’s short-term performance, even if the long-term fundamentals remain intact.

However, I believe the sell-off is well and truly overdone. The stock is now trading at 6.6 times forward earnings while offering steady earnings growth — according to forecasts — and has a fortress-like balance sheet.

The company currently has £2bn in net cash — including customer deposits — but only has a market cap of £2.7bn. The forward enterprise value-to-EBITDA ratio now sits at 0.83 — which is incredibly low compared to its peer group.

The post 3 companies to consider adding to your Stocks & Shares ISA in October appeared first on The Motley Fool UK.

The two said they’ve signed a letter of intent, with Nvidia planning to invest up to $100bn in OpenAI. The aim is to provide at least 10 gigawatts of power to advance the next generation of AI models. Nvidia CEO Jensen Huang called it the “biggest AI infrastructure project in history.”

A 4% rise on the day might not sound like much for a stock that’s already up 1,350% over the past five years. But it’s enough to nudge the market cap close to a staggering $4.5trn.

AI stock boost

This deal will inevitably brighten the enthusiasm of long-term Nvidia bulls. But it could also add impetus for AI-led growth for a number of other stocks.

One of those is Micron Technology (NASDAQ: MU), due to post full-year results later Tuesday (23 September). Micron makes a range of semiconductor memory devices, including high-bandwidth memory. That’s in great demand for AI processing, and it’s helped send Micron earnings soaring over the course of the past year.

Valuation is my main concern with a stock like this, driven by a technology-led bull run. And in this case we’re looking at a scary trailing price-to-earnings (P/E) ratio of 137 for 2024.

Still, analysts expect that to fall dramatically for the 2025 year just ended, with most suggesting the high 20s. If forecasts are right, it could even fall under 15 in the next couple of years.

We must consider the intense competition in this sector, with a large number of global companies pumping out huge volumes of memory chips. What if someone else comes out with the next-generation technology to capture the AI imagination?

Even more chips

There’s a bigger AI valuation premium at Advanced Micro Devices (NASDAQ:AMD), with a lofty forward P/E up at 67. That’s a fair bit ahead of even Nvidia’s predicted multiple, which stands at 42. Hmm, AMD suddenly makes Nvidia look cheap.

AMD has recently signed a deal with IBM to work on developing quantum computing, and that gave the stock price a boost. I’m not holding my breath waiting for the quantum revolution, mind. It’s been promised for so long now, but really hasn’t lived up to the hype yet.

Yes, it might well herald the next computing revolution. I just wonder if investors might be paying a bit too much today for jam tomorrow.

Still, I can’t deny that AMD could hold significant potential for AI-led growth. And unlike so many of the start-ups, AMD joins Nvidia as a highly-profitable company with strong cash flow. And forecasts do show that P/E coming down fairly quickly.

What to do?

US consulting firm Bain & Company estimates AI companies will need around $2trn in combined revenue to fund their planned expansion to meet predicted demand. But they project a shortfall of $800bn. And that worries me.

I do think investors could do well to consider buying all three of these stocks for the long term. But the possibility of big short-term falls keeps me away, at least for now — I remember the dotcom bubble all too clearly.

The post As the Nvidia share price jumps 4%, here are more stocks that could get an AI boost appeared first on The Motley Fool UK.

With shares already hitting record highs, investors might assume the opportunity has passed. But when looking at both growth potential and valuation, Micron still looks surprisingly attractive, in my opinion.

A hidden bottleneck

Most people think AI is all about graphics processing units (GPUs), but that’s only half the story. Powerful processors need equally powerful memory to work effectively. Without enough high-bandwidth memory (HBM), these GPUs can’t reach their full potential. This is a challenge often described as the “memory wall”.

Micron is one of just a handful of companies that can manufacture HBM at scale, and its latest HBM3E chips are already being used in Nvidia’s Blackwell GPUs and AMD’s MI350X series.

That effectively makes it a critical supplier to the two giants that dominate AI infrastructure. Demand is so strong that Micron’s entire HBM output for 2025 is already sold out, with customer negotiations for 2026 underway.

The company’s also preparing to launch HBM4, which will deliver a 60% bandwidth boost over today’s chips while cutting power use by 20%. With data centres facing soaring energy costs, this efficiency could be a major selling point.

Inference: another growth driver

Training large AI models grabs headlines, but inference — the process of running those models in production — is where memory really matters. Each time users query a system like ChatGPT, the model’s parameters must be loaded and accessed at high speed. Multiply that across millions of daily users and the memory requirements become enormous.

This shift plays directly into Micron’s strengths. Industry forecasts suggest the HBM market could grow from $35bn this year to $130bn by 2033, according to Bloomberg Intelligence. That’s a compound annual growth rate of over 40%. With margins on HBM stronger than traditional dynamic random-access memory (DRAM), that should drive both revenue growth and profitability.

Valuation still undemanding

Despite the rally, it doesn’t look expensive compared to its peers. Its forward price-to-earnings (P/E) sits at just 19.6, well below the semiconductor sector median of 24.7. This falls to 12.6 times for 2026 — that’s very appealing for this sector.

More telling is its forward price-to-earnings-to-growth (PEG) ratio — a measure of valuation adjusted for growth. Here, Micron scores just 0.22 versus an industry median of 1.85. It’s slightly warped by surging earnings, but it’s still a very good sign.

Backing this up is a solid balance sheet, Micron carries modest net debt and generated $4.6bn in operating cash flow last quarter alone. Yet the stock trades at barely 11 times forward cash flow. That’s a steep discount to the sector’s 18.9.

The bottom line

It won’t be without risks. Semiconductor markets are notoriously cyclical, and any slowdown in AI investment could weigh on demand. That would likely result in Micron shares really pulling back.

However, with HBM demand locked in for the next year and growth prospects tied to the long-term shift toward inference, Micron’s a stock worth considering.

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