What happened
Shares of the memory chip maker Micron technology (MU -2.19%) is down 2.2% today. In fact, the stock is down about 10% since Micron reported earnings on the evening of March 29. It was a solid quarterly update that beat expectations and showed Micron’s momentum holds up this year as the world continues to suffer from a shortage of stock chips.
so what
As for numbers, Micron’s management said that in the second quarter of fiscal 2022 (the three months ended March 3), revenue and adjusted earnings grew 25% and 118% year over year, respectively. The prices of its memory chips are expected to rise by a double-digit percentage for the rest of the year as demand for electronic components continues to exceed the supply Micron can muster.
That means at least a few more quarters of strong growth are likely. So why the depressed mood among Micron investors? Some equity analysts are beginning to sound alarms in the industry, noting that incandescent demand (especially for consumer devices) could be easing in 2023.
Above all, Barclays Analysts led by Blayne Curtis downgraded modern micro devices ( AMD -1.05 % ) from Outperform to Perform this week, citing a possible slowdown in growth next year.
What now
Perhaps Micron sympathizes with AMD. This makes sense since digital memory chips are a fundamental commodity found in more complex semiconductor units and computing devices (like those developed by AMD). If higher-end chip companies sneeze, Micron could catch a cold. Historically this has been the case. The semiconductor industry is cyclical, and Micron is particularly so.
Data from YCharts. TTM = trailing 12 months.
However, there are undeniable long-term growth trends that are driving Micron and the entire semiconductor world higher. Management highlighted the data center, automotive and industrial equipment segments as areas of particular note during the last conference call. More complex technology requires more memory, a trend that should keep Micron’s sales higher for many years to come (albeit at a wilder ebb and flow than many of its competitors).
The stock trades at less than 10 times trailing 12-month earnings and less than 18 times trailing-12-month free cash flow. When the next downturn in chip sales will hit is anyone’s guess, but Micron has heard that story before. It’s in great financial shape and ready to weather the storm.
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