The semiconductor company Micron (MU) is set to report its first-quarter earnings of Fiscal 2025 on December 18, with strong top- and bottom-line growth expected, continuing the solid performance seen throughout fiscal 2024. I remain bullish on the stock heading into earnings, primarily because I believe its valuation is relatively de-risked, given the impressive growth and promising guidance for the upcoming quarter. This growth is fueled by robust demand for Micron’s advanced memory solutions, driven particularly by the rise of artificial intelligence (AI).
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However, I expect much of the post-earnings reaction to be driven by the company’s guidance for the remainder of the fiscal year, as well as how it has managed its capital expenditures. This has been a key area of skepticism for many investors, contributing to the stock’s underperformance compared to other tech stocks benefiting from the AI boom.
Micron’s Shows Impressive Growth Trajectory This Year
Before diving into why I remain bullish on Micron, it’s important to provide some context on the company and its recent performance. Micron develops and sells memory and storage products, primarily DRAM and NAND. Demand for these products has surged, driven by the growing adoption of AI, which is fueling increased demand for computing power.
As a result, Micron has delivered impressive performance throughout Fiscal 2024. The company’s revenue grew 61.5% year-over-year over the past twelve months, while operating cash flow increased fivefold. On the bottom line, Micron’s EBITDA surged by an astounding 304% compared to the previous year.
Given this robust growth, Micron’s management believes that the company is currently in the best competitive position in its history. The company has already indicated that Q1 2025 will set substantial revenue records, with significantly improved profitability projected for the full fiscal year.
Why Micron’s Shares Aren’t Reflecting Bullish Growth Sentiment
While I continue to view Micron as a compelling buy opportunity due to its strong momentum in key markets like data centers and AI, and its expectations for even stronger performance in Fiscal 2025, its stock’s performance has not lived up to this optimism. Despite solid growth, Micron shares have risen only 19% in 2024, underperforming the S&P 500 (SPX) as of the latest update.
This underperformance, despite strong top- and bottom-line growth, can be attributed to several factors. One of these is Micron’s balance sheet, which carries a significant amount of debt—about $12.9 billion in long-term debt, against $7 billion in cash and equivalents. However, perhaps the primary concern for investors has been the company’s capital expenditures (CapEx). In its most recent quarter (Q4), Micron reported $3 billion in CapEx, bringing the total for the full year to $8.1 billion. This represents roughly 33% of its revenue. Management has also indicated that these investments will continue as the company expands its manufacturing capacity, taking advantage of U.S. government incentives for domestic manufacturing.
This raises concerns among investors, particularly given Intel’s experience with a similar strategy. As a result, there is growing apprehension that Micron could face similar challenges in scaling up its technology in 2025. Additionally, there are questions about the competitiveness of building manufacturing facilities in the U.S. compared to those overseas, where production costs are significantly lower.
What to Expect from Micron’s Fiscal Q1 Results
With Micron’s Q1 earnings report just around the corner, much of my optimism about the upcoming results stems from the company’s relatively de-risked valuation, especially given the guidance provided for Fiscal Q1. To start, management expects $8.7 billion in revenue for the first quarter, implying an 84% year-over-year increase, along with EPS of $1.54.
Looking ahead, consensus estimates suggest that Micron will grow its EPS at a compound annual growth rate (CAGR) of 51.4% over the next three to five years. With a forward P/E ratio of 11x, this results in a PEG ratio of just 0.20x, which is well below the commonly accepted threshold of 1x, signaling that the stock is undervalued.
That said, since Micron seems to be facing little pressure heading into Fiscal Q1 earnings, I don’t anticipate a major market reaction if revenue or earnings come in slightly above or below expectations. More important will be the company’s outlook on capital expenditures (CapEx), which has been a key factor in its investment thesis. The focus will likely be on how Micron plans to allocate its capital going forward. Additionally, it will be crucial to hear management’s take on potential geopolitical risks, such as tariffs, and how these could impact the company’s financials if demand projections fall short.
Is MU a Good Buy?
My optimism for Micron aligns with the consensus on Wall Street. On TipRanks, MU is rated a Strong Buy, with 23 out of 25 analysts offering bullish recommendations and only one maintaining a neutral stance and one bearish. The consensus suggests strong upside potential, as the average price target stands at $149.81—an upside of 46.8% from the latest share price.
Key Takeaway
I rate MU as a Buy heading into earnings, primarily because the stock’s valuation appears significantly de-risked relative to its growth trajectory and estimates, particularly in light of the strong guidance for Q1. However, guidance for Fiscal Q2 and updates on CapEx will be key factors in shaping the short-term market reaction. Regardless, I remain optimistic about the long-term outlook, which, in my view, offers an attractive risk-reward ratio.
