Last Thursday, Micron Technologies’ stock experienced a decline, leaving investors puzzled about the reasons for this surprising movement. The impact of artificial intelligence on this sharp drop raises questions. But what really happened? Let’s discover together the ins and outs of this unexpected situation.
Quarterly Performance of Micron Technologies
Last Thursday, shares of Micron Technologies (NASDAQ: MU) plunged, dropping as much as 7.9% before stabilizing at a 5.9% decrease by the end of the day. This drop occurred despite seemingly robust financial results for the third quarter of fiscal year 2024.
Micron reported revenues of $6.8 billion, up 82% compared to the previous year, and adjusted earnings per share of $0.62, compared to a loss of $1.43 a year earlier. These figures exceeded analysts’ expectations, who had anticipated revenues of $6.67 billion and adjusted earnings of $0.50 per share.
Impact of Artificial Intelligence on Results
Micron explained that the balance between supply and demand is improving, which has contributed to increasing its pricing power. Record sales in data centers, fueled by strong demand for artificial intelligence (AI), played a major role. AI-related products, such as high-bandwidth memory, high-capacity dual in-line memory modules, and SSDs for data centers, saw sequential growth of over 50%.
Market Expectations and Investor Reactions
Today, investors expect consistent exceptional performance from AI-related stocks, leading to a premium valuation compared to their historical levels. Micron is no exception to this rule, but market expectations can sometimes be difficult to predict.
For the next fiscal quarter, Micron’s management anticipates revenues of $7.6 billion, representing a 90% year-over-year growth. While this is an impressive figure, it corresponds exactly to Wall Street’s consensus forecast. Investors were likely hoping for a higher forecast and a positive reevaluation, which did not happen.
High Valuation and Investor Expectations
Currently, Micron’s shares are trading at around 52 times earnings and 126 times future earnings. These high multiples indicate that investors had very high expectations—perhaps even unrealistic—before the quarterly results were published. A solid quarterly performance does not always meet these expectations, which is why the stock price fell.
Long-term Considerations
It is crucial to keep in mind that demand related to AI will come in irregular waves. The trajectory of AI is indeed on the rise, but this does not imply a linear and predictable increase in revenue. The projected 90% annual growth is an exceptional figure that investors should not lose sight of in the long term, despite short-term stock fluctuations.
Advice for Investors
Before investing in Micron, it is advisable to conduct a thorough assessment. The analyst team at Motley Fool Stock Advisor has identified 10 stocks they consider to be the best investment opportunities at the moment. It is always good to consider these recommendations and not get swept away by short-term movements.
