For a company responsible for a massive amount of memory and storage chips used in smartphones and servers across the internet, Micron Technology Inc.'s (MU, Financial) $56 billion market cap seems ultra low compared to industry peers.Ă‚
Micron
Annual sales: $28.1 billion
Annual profit: $12.1 billion
Market value: $56.2 billion
Intel Corp. (INTC, Financial)Ă‚
Annual sales: $66.2 billion
Annual profit: $18.5 billion
Market value: $216.1 billion
More importantly, Micron is still set to earn more than $20 billion over the next two years. Smartphones and solid-state storage devices (SSD) continue to drive massive demand for the company's NAND chips. Management expects SSD-based sales to grow at an annual rate of more than 40% for the next five years. Dynamic random-access memory will likely continue to grow at a healthy 20% per year as a result of a shifting market mix. Consumers keep buying devices with larger and larger DRAM capacities, the internet of things will provide another major growth opportunity and the next generation of technology (e.g., artificial intelligence and virtual reality) will require even more memory and storage.
The current volatility seems to stem from both the China-U.S. trade war and an ongoing dispute with its supplier, United Microelectronics (UMC, Financial), a Taiwanese chip foundry. In July, United Microelectronics said the Fuzhou Intermediate People’s Court issued an injunction preventing Micron from selling its DRAM and NAND products in China, which the company quickly denied. These two companies have filed legal action against one another for “theft of trade secrets” and “patent infringements.”Â
Many analysts are still undervaluing Micron stock because of this. Guru David Tepper (Trades, Portfolio), however, continues to add to his position. The money manager started buying Micron at the $8 level in 2010. Looking at the trade history, he may have lost money by selling out too early. Tepper picked it back up at the end of 2016 for a reported price of $21.92, and has since increased his position from 3.25 million shares to over 40 million shares.Â
If Micron does book the kind of performance it expects, investors are buying in at 5 times earnings right now. It’s a no-brainer. In the last five years, there have been peaks and valleys with the stock, but it has steadily moved higher. Despite being in a highly commoditized business, Micron is finding a way to increase shareholder value. From a long-term perspective, technology is really just starting to prevade our everyday lives. In two or three decades, the company could be 10 times more valuable because of the necessity for its products.
Disclosure: I am not long or short any stocks mentioned in this article.
