Micron Is Stronger--and Pricier--Than Ever
The memory supplier is well-positioned, but we continue to view shares as significantly overvalued.
On May 21, Micron (MU) hosted an upbeat analyst day as the memory supplier enjoys an unprecedented DRAM and NAND pricing environment that has fueled robust revenue growth and profitability levels. Management increased its fiscal third-quarter guidance from a midpoint of $7.4 billion in revenue and $2.83 in non-GAAP EPS to $7.75 billion and $3.14, respectively, owing to persisting favorable supply/demand dynamics across memory and storage markets. We concede Micron is well-positioned to benefit from a well-diversified data economy fueled by cloud computing, artificial intelligence, or AI, the Internet of Things, autonomous vehicles, the shift from HDDs to SSDs, and greater DRAM and NAND content across incumbent PC and smartphone markets.
As a result of the stronger near-term expectations, we are raising our fair value estimate to $36 per share from $34 for no-moat Micron. However, we continue to view shares as significantly overvalued at current levels, and recommend prospective investors seek a wider margin of safety. Our concerns primarily stem from our view that the recent trend of rational investment is unsustainable, particularly as Chinese vendors look to enter the memory fray and the likes of Samsung potentially increase capacity.
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Abhinav Davuluri does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.
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