Micron Technology, Inc (NASDAQ:MU) stock gained over 3% during Monday’s premarket session as risk appetite firms up into the open and traders continue to lean into the stock’s longer-term uptrend. Nasdaq futures are up 0.53% while S&P 500 futures have gained 0.18%.
The stock could deliver stronger earnings and cash flow for longer than the market expects as tighter industry supply and structural changes in the memory business extend the current cycle, according to Trivariate Research founder and CEO Adam Parker.
Parker Sees Micron’s Earnings Staying Stronger for Longer
Parker told CNBC last Friday that Trivariate ran 10,000 simulations to assess how long Micron’s current earnings cycle could last and how much the company could generate.
He believes consensus estimates assume earnings will fall too quickly after reaching a peak.
Parker estimates Micron trades at roughly 11 to 12 times normalized earnings and about five times peak earnings, a valuation he considers too low.
He also said investors are not fully accounting for Micron’s potential cash generation, estimating that the company could generate close to $300 billion in free cash flow over the next two years.
Based on that outlook, Parker said Micron’s stock will “probably” double over the next couple of years before the cycle ends. Asked whether Micron could eventually reach a $1 trillion market capitalization, he said, “I wouldn’t be shocked.”
Industry Changes Challenge the Old Memory-Cycle Playbook
Parker argued that investors should not rely on Micron’s historical boom-and-bust cycles to judge the current opportunity.
He noted that DRAM previously represented about 40% of a server’s cost but now accounts for less than 10%, while the memory industry has also consolidated.
He expects constrained supply to help sustain the cycle and believes Micron could generate more earnings for longer than investors currently anticipate.
Parker Plays Down China Supply Risk
Parker also downplayed concerns that additional Chinese semiconductor supply could quickly undermine the market. He pointed to the long timelines required to build leading-edge manufacturing capacity, arguing that competitors cannot rapidly add enough production to disrupt supply conditions.
As a result, Parker believes persistent supply constraints and stronger-than-expected earnings could support Micron’s performance over the next few years.
Earnings And Analyst Outlook
Micron’s next earnings report is estimated for Sept. 22.
Analysts expect earnings of $31.27 per share, compared with $3.03 per share a year earlier. Revenue is projected at $50.81 billion, up from $11.31 billion.
Micron carries a Buy consensus rating with an average price forecast of $1,537.50.
Recent analyst moves include Citigroup, which maintained a Buy rating on Aug. 7 but lowered its price forecast to $1,150. KeyBanc Capital Markets maintained an Overweight rating and raised its price forecast to $1,750 in July, while Cantor Fitzgerald maintained an Overweight rating and raised its forecast to $2,000 in June.
Top ETF Exposure
- Invesco PHLX Semiconductor ETF (NASDAQ:SOXQ): 8.91% Weight
- State Street SPDR NYSE Technology ETF (NYSE:XNTK): 8.14% Weight
- Invesco AI and Next Gen Software ETF (NYSE:IGPT): 8.71% Weight
Significance: Because MU carries such a heavy weight in these funds, any significant inflows or outflows for these ETFs will likely force automatic buying or selling of the stock.
Price Action
MU Stock Price Activity: Micron Technology shares were trading higher by 3.58% at $1006.47 during premarket trading on Monday, according to Benzinga Pro data.
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