Micron $MU: Forward P/E around 5 and a business that I think is changing
Micron is currently trading at a forward P/E of around 5, which is a very low valuation at first glance. Of course, it must be taken into account that the memory industry has historically been highly cyclical, and investors have traditionally been unwilling to pay high earnings multiples.
In my opinion, however, the situation is starting to change.
From the latest quarterly results, it is clear that Micron is no longer just a company waiting for the next cycle in DRAM and NAND prices. The company announced transformative Strategic Customer Agreements that ensure long-term purchases and better demand predictability. This could significantly reduce the earnings volatility that has been typical for Micron in the past.
The results for the last quarter were exceptionally strong:
- record revenue of $41.46 billion,
- operating cash flow of $25.39 billion,
- record net income,
- management also expects further growth due to continued demand for AI infrastructure and HBM memory.
HBM memory is now one of the most important products for training and running AI models. Micron has become a major supplier of this memory and is benefiting from massive investments by hyperscalers such as $MSFT Microsoft, $AMZN Amazon, $META Meta, and $GOOG Google in AI data centers. The market also expects high investments in AI to continue in the coming years.
I therefore think that the market may still be valuing Micron through the lens of an old, highly cyclical memory manufacturer. However, if the long-term contracts and structural demand for AI memory persist, the company's cyclicality could be significantly lower than in past years.
That is exactly why I consider the current valuation to be very attractive. In my opinion, a forward P/E of around 5 does not correspond to a company that is posting record results, generating huge cash flow, and has demand secured through long-term strategic agreements.
https://www.youtube.com/embed/WmOVcgNKwhIWhat is your view on Micron? Is the market valuing the company correctly, or do you think it is still significantly undervalued?
