AI Stock Micron (MU) - Micron Technology ($MU) as an AI Stock Investment

Is Micron the next big AI stock you should invest in? We analyze Micron's recent earnings call and the potential impact of their products on the AI industry. We discuss the valuation of Micron and the importance of considering forward-looking metrics in relation to Micron's DRAM and NAAN memory. We also cover potential risks associated with investing in Micron, along with a look at the overall market and the importance of monitoring CPI and PPI data. 

Micron (MU) AI Stock Episode Takeaways:

-Micron's (MU) recent earnings call indicates strong revenue growth due to AI and potential partnerships with companies like Nvidia, which could drive future demand for their products.
-Valuing Micron based on traditional metrics like PE ratios may not accurately reflect the company's potential due to its explosive growth in AI and changing market dynamics.
-AI server demand is expected to continue driving revenue growth for Micron in the near future.
-Investors should consider the overall market conditions, including CPI and PPI data, when making investment decisions.
-Recent developments in the AI industry, such as OpenAI's GPT-3 and Apple's Realm model, highlight the increasing mainstream interest and potential of AI technology.

Micron ($MU) AI Stock Episode Chapters

0:00 Introduction
0:46 Overview of Micron and Disclosure
1:39 Micron's Products and Impressive Earnings Call
4:36 Exciting Developments and Potential AI Partnerships
6:38 Valuing Micron: PE Ratios and Competitors in AI Memory
8:24 Cyclicality and Future Growth due to AI
9:01 Evaluating $MU EPS and PE Ratios
10:07 Using Different Metrics to Value Micron (MU)
19:08 Analyzing Micron's Risk and AI Server Demand
23:30 Considering Overall Market Conditions
27:00 Recent Developments in the AI Industry

Transcript

James (00:00.078)
Welcome to Investing in Intelligence, where we talk about artificial intelligence companies, stocks, and trading. I'm James here with my co -host, Kai. And today we'll be talking about Micron. I want to remind you that the opinions expressed on this podcast are just that opinions. They should not be taken as specific advice to invest in a particular way. Just wanted to start off with a disclosure. I do own Micron. I think it's four or 5 % of my AI portfolio. Kai, do you own any Micron or have any trades on right now?

Kai (01:09.325)
I had trades on, I do not currently know.

James (01:11.662)
Cool. Well, let's jump right in. So Micron is a big manufacturer of DRAM and also they make another product which they call NAN, N -A -A -N. So DRAM is the type of memory that stores information while you're using your computer or your GPU, but when you turn it off, it doesn't store anything. So RAM is essentially like a hard drive, but it...

only stores information while you're using your GPU or your CPU. And I want to just start off by playing a minute from the conference call here. So pretty impressive, pretty impressive earnings call. And I'd like to just play a little part we have here.

James (03:14.798)
So I'm gonna cut it there. I just wanted to play that part where he's talking about how they are sold out for 2024 and mostly sold out for 2025. So when I read the Morningstar report for Micron, they pretty much said that Micron has no moat. So Micron is a company that makes DRAM, high bandwidth memory, but they have big competitors. So...

SK Hynix and Samsung are huge competitors and they kind of share this market together. So the three together have 90 % of the market, but it's a commodity like product is what Morningstar said in the report. Well, this seems to contradict that. So Morningstar seems to be a little bit out of touch or rather poorly updated for this earnings call where Micron is saying they've been chosen by the holy Nvidia.

to provide the high bandwidth memory for their upcoming new GPUs. And they're just sold out. So also 30 % lower power consumption. So anyone who watched the Nvidia event about a month ago saw that they were really emphasizing the low power nature of their new GPUs. Well, it seems like Micron is a chief reason for that. And Micron's high bandwidth memory, their 3E high bandwidth memory will be a critical part of Nvidia's new GPUs.

Does this sound exciting to you too, Kai? I mean, it seems to me like the analysts who are dogging this stock maybe are a little behind. Maybe they haven't caught up to speed on what's really going on here.

Kai (04:49.165)
So what's your, I mean, it's a great earnings call. It was a great outlook. It was a great forward projection. They mentioned AI server demand. It's kind of the one thing I take from it, right? It's AI server demand that's driving this revenue growth. They also go on to say we cannot guarantee profitability later on.

But it was overall a really good earnings report. I think the EPS they reported was what, $5. If you look over the last 10 years, their EPS has been an up and down story. And they have about the same amount of asset to liability, same amount of cash. Although as a company, it's not shown consistent.

earnings growth. However, the narrative in regards to their projection was very good. It was very forward telling. So my question for you, I agree with your take on that. But my question for you is so what EPS for the year are you thinking or expecting? And then what PE are you trading at? And, and that may

I want to hear what you think on that because your ideas on just the PE that at the end of 2025 or for 2024 we may be at and the EPS, your idea for that may give me some opinions on regards to the analyst because the analysts overall I think are bearish right now. Correct? Is that your understanding?

James (06:38.254)
Yeah, so a couple things there. It's important to use the right metrics for when you value stocks. So I'm going to go ahead and pull up the Yahoo Finance for Micron. And you're going to see here that we have a trailing PE of 10 and a forward PE of 344. I would just say right away, neither of those numbers are the right things to use to value this company right now.

Kai (07:01.837)
So what are you using? What are you using? What PE are you trading them at? I mean, what their competitors are Intel and Samsung, maybe Western Digital. Okay, so.

James (07:09.934)
SK Hynex and Samsung, not Intel, not Intel, SK Hynex and Samsung. Well, but, but you're, you're, you're onto something. They make different products and that's actually a major issue here is that they make different products and they have different competitors for the different products. So you're talking, when you talk about maybe Western Digital and who was the other you mentioned?

Kai (07:29.805)
Intel.

James (07:30.51)
Yeah. So when you talk about some of these other companies, they may be competitors for their NAN memory, but NAN only makes up 20 % of Micron's revenue, whereas DRAM makes up 71 % of their revenue. So we care a little bit more about DRAM for them and DRAM, they only have two competitors and that's SK Hynex and Samsung. So, I mean, NAN revenue is growing. NAN revenue also grew by about 30%.

quarter over quarter, and by the way, their DRAM grew 21 % quarter over quarter. That's not year over year, that's quarter over quarter. So they have explosive growth right now, which is why you can't really use these PE ratios. Trailing PE will be wrong. In this case, forward PE is also going to be wrong because it's just, when they have explosive growth, you have to be careful. I mean, it's almost like you can't use any of the valuation measures when they have explosive growth.

But the cyclicality makes the picture even more difficult for Micron. So traditionally they've been a highly cyclical business where maybe they'll have a year or two of great sales and then they'll drop off. And that's actually another mistake that I think Morningstar might be making right now. Morningstar is saying that essentially they think this is going to go on until 2025 and then it's going to stop. But if you're a believer...

Kai (08:50.381)
Well, yeah, I don't care about that. I mean, in regards to maybe if you're making a 10 year trade, maybe going long for 10 years, but let's just look at the next two year picture for MU. And so do you think currently MU is trading in the 120 range right now? Is it overvalued or undervalued?

James (09:01.646)
Yeah.

James (09:09.326)
It's...

So Morningstar's target was around $80. You have to ask yourself another question before you say overvalued or undervalued, you have to ask yourself what you believe. Now I did pull up.

Kai (09:25.421)
Well, I think you asked that to me, I have to ask you myself what the PE is because I do expect their EPS potentially for the year to be. Well, why not? I mean, so what I'm saying, I expect EPS growth. What they're basically saying in their, in their quarterly report is that they expect revenue growth, which will lead to EPS at least being five or growing. They're going to have EPS growth this year. So if EPS is around 20 for the year.

James (09:30.67)
You can't use P E. You can't use P E here. Look, so there are...

Kai (09:54.221)
PE is going to help me calculate that price target. So let's just say it's 20 and you know, let's just say we traded at a hundred PE. Well, you know, that's a meme.

So.

James (10:07.726)
All right, so I've pulled up to just, since you insist upon looking at their PE, I'm going to, which I think is fair. I'm going to go ahead and multiply. So the high analyst estimate for next year, which is someone who probably, an analyst who probably listened to the earnings call like we did, I'm going to do 12 .82. I'm going to multiply that by 30. And it looks like the number I get here is 384 .6. So someone who actually believes in the AI story is...

using a price target of $384 with a PE of 30. Now, obviously, if you want to use your 10, which you know, earlier 100, I think you said 100 PE times 12 .82 is going to give you a target of 1282. We're not going to 1282. So when you ask yourself, I mean, but look, but wait, real quick, look at their EPS. So you see negative, I see negative year ago EPS negative. That's why on

Kai (10:56.461)
So that's my point, that's my point. That's my point here is so.

James (11:05.838)
our website here, when we do our scorecard, our report cards, we look at meets expectations. So meets expectations is like consistent. Also earnings growth, our factor for earnings growth on the report card takes into consideration whether or not they're consistently growing earnings. So this is a cyclical business, at least it has been. I'm just saying right now, the cyclicality might go more than two years.

Kai (11:25.869)
It has been, it has been, I mean, well, and that's what it has been a cyclical business as a not risky play. I give it an F. Okay. As a AI play over the next two years, I give it an A. I mean, and so the price, the price drop, my point is, is we've seen an ocean of EPS over the last 10 years. This has been a, when you're investing long -term in a stock,

James (11:38.158)
Ha ha ha!

James (11:42.702)
Okay.

Kai (11:53.261)
You want to see consistent growth over a long period of time. And so if you're saying, Hey, you know what, James, I'm going to make this a hundred percent of my portfolio. Would you think that that's a risky play or a not risky play?

James (12:05.614)
Well, no one should ever make anything 100 % of their portfolio. It doesn't matter how much you believe in it.

Kai (12:10.093)
I'm saying an if. I'm saying if. How much risk is calculated if you were to say I'm going to take every, I have a thousand dollars, I'm going to take my thousand dollars and put it on MU.

James (12:18.478)
I think if you did that, I think your thousand dollars will be worth more than a thousand dollars two years from now. But I mean, if they really can have 12 .82 for their next year earnings, then their Ford PE is nine, nine, Kai, nine. So.

Kai (12:38.093)
No, I exactly I exactly I see what you're saying. I think what I'm getting at is the risk tolerance in regards to investing and stratifying among all the AI companies if that we're going to if that's what we're doing here. For example, if you had $1 ,000 and you put it on Walmart, you're going to have your $1 ,000 in two years from now, your $1 ,000 may be worth like $1 ,300 $1 ,400. However, you may go ahead and quadruple your $1 ,000. It just depends on how much risk you want to take with that $1 ,000 right now.

James (12:58.382)
Yeah, I mean, look.

James (13:06.094)
Sure.

Kai (13:06.477)
And I think that you may see a up and down movement with MU three or four years from now. However, I will say that currently the outlook for the next year with, and I'll say this again, AI server demand is the key is good for MU. I think it's overly valued right now. My particular opinion is I was considering shorting this stock.

I do own this stock preview. I did own this stock when it dropped. So the story, let's just talk quickly about the story of MU back when we talked a couple months ago, it dropped into the high seventies, I believe. And I went ahead and traded this. I went long on this stock when it dropped because I do think the AI server demand was going to increase. And it did. And now it's trading at 122.

It's an interesting position MU is in currently. Let me just say that. But AI server demand is not going away in the next year. Would you agree with that statement or not agree?

James (14:15.47)
Yeah, what I don't agree with is where you say something like this is overvalued. So you're thinking about past earnings, past, the market is forward looking. So you absolutely have to consider value as something that is forward looking in the stock market. And so, yeah, looking at the chart, like you just did, we go from 80 and now we're at 120, but that's because there's been a big change. There's been a big change in forward expectations. And another thing that you mentioned,

risk, just stratifying risk.

Kai (14:45.101)
And I quote from, well, let me say, and I quote from MU's website, Micron Technology, we cannot guarantee future results, end quote. Now, AI server demand, they were, my take on at least listening to the CEO talk is that it was transparent. There wasn't a lot of fluff there. When you're listening to these,

earnings calls and or the CEO talk. You want, you don't want, I don't want fluff. I want facts. Let's just go with that. I want, I want facts. And I think they presented really good facts. And I think that's why Micron technology, we've seen a lot of volume. The volume had picked up quite substantially in trading Micron technology until the last week. Um, so.

James (15:35.822)
Well, I mean, here are your facts 2024 and 2025 should see a 60 % and 30 % revenue growth compared to 2023 respectively. And we predict record revenue for 2025. Now that would only change if AI just died and everyone, everyone right now thinks AI is a revolution beyond the scale of the internet. Okay. Well, some think it's on the scale of the internet, but beyond the scale of

cryptocurrency and cryptocurrency really took off and there's trillions, there's about $3 trillion in cryptocurrency right now. And you can't even really use crypto for anything except for speculation and trading. AI has the potential to replace an enormous amount of jobs. Some estimate 30 % of all jobs. So unless the US government and all the governments of the world get together and kill AI, I don't see Micron going down. I don't see it as undervalued or overvalued either.

Kai (16:22.189)
Now, let me ask you a question.

Kai (16:28.333)
Well, my question regarding the revenue growth does, and I need to look through the, again, the earnings call on this. Does that mean 2023 revenue or does that mean 2022, 2021 revenue? Because the revenue in 2022, 2021 was about $30 billion. The revenue in 2023 was about $15 billion. So 20, 30 % of 2022 revenue is a different story than 2022 or...

30 % of 2022 revenue of the 30 billion puts at it about an additional $10 billion. Do you see what I'm saying? Versus the $15 billion in 2023. So I need to, that may be something to check what he meant is regarding the revenue for the year. But I think what he's talking about consistently is that 30 billion. I think they're going to be at a revenue of around $40 billion for the year, in my opinion. So.

James (17:05.646)
Yeah, so they're in their Q3 right now.

James (17:13.102)
Yeah.

James (17:25.87)
Yeah. Yeah. Um, it actually can be really tricky to match up what, what quarter they're in and what year they're in and compare that to what they're predicting. So that can be really tricky. And actually there's a lot of nuance there that's important. So you're dead on with that. Yeah. But for me, I just care about explosive growth. That's, that's the main thing that gets me excited as the explosive growth.

Kai (17:45.805)
Yeah, but the explosive growth you're talking about is revenue growth. Correct?

James (17:50.286)
Well, profitability, I mean, so it says here they're expecting to be highly profitable too. They have good margins. So if you're talking about the difference between top line and bottom line, they have good margins and they're actually, they're doing this new thing where they're repurposing old modules. So like old DRAM modules, they're able to, I don't want to say recycle, but pretty much refit and repurpose those. And that actually helps with affordability with costs. So I think it's an amazing company and the big, I just want to point out.

the two or three big things here. So number one, this used to be a commodity like product with no differentiation between the three big players. And now it seems like that has changed and Micron has been selected by Nvidia and apparently they have a better product. So that's the biggest thing. The second thing would be the lower power consumption, which makes them a better product. And then...

Yeah, other than that, they're just predicting this explosive growth that if you believe AI truly is a big deal could go on past 2025. So that's the things that the analysts, the bears are missing. This could go on past 2025 and they maybe have a better product now. Those are new things. Those are new things. This is not necessarily commodity like product if they're differentiating themselves with a higher quality output.

Kai (19:08.301)
I'm watching, I'm going to watch in April. I don't know when their next earnings call is, but their next earnings call, I'm going to watch very closely the revenue. And I'm also going to watch this earnings call very closely because that may tell the story in regards to the next year or two. Now, beyond that, I don't want to say, but AI server demand is not going anywhere over the next few quarters. Let's just say that. Would you agree?

James (19:33.07)
Yeah. Yeah. Yeah. June 26th, June 26th.

Kai (19:34.925)
So let's watch this next earnings call. Yeah, let's watch this next earnings call and see what the revenue turns out, what the EPS turns out and which way this company is going. What is your take on just trading this last week? Micron, a large amount of volume. The market, we saw this, it was up, up and away. And for this last week or two, we've seen some choppy waters, the market trading essentially sideways, but some action.

on Thursday that was a large swing and then the Federal Reserve started talking and automatically a little bit of a sell off. So what is your take on just Micron and the overall market over this last week or two?

James (20:17.518)
Yeah, so supposedly the jobs report was as close to perfect as it could be. We had lower wage growth while we had.

Kai (20:27.373)
Is that what the Fed wants to see though? Do you think that's what the Fed wants to see?

James (20:30.126)
Yes, because of the lower wage growth. So the Fed is thrilled to see lower unemployment and good job growth if there's lower wage growth, because those jobs that are being added don't necessarily contribute to inflation as much. And from what I hear from the expert economists, even with great employment, even with slight wage growth, it still doesn't necessarily tie directly into inflation immediately. So

I hear a lot of economists, and by the way, I think we should listen to them rather than just some analysts who wants to be an economist, but I hear a lot of economists saying that CPI and PPI might actually be in line, not lower than expected, but maybe not higher than expected. And the reason for that is we have a cyclicality, we have wonky numbers sometimes early in the year. So I'm not necessarily predicting CPI and PPI to be hot next week and then for us all to just freak out and go jump in the ocean and sell everything.

Um, I think that the numbers might be okay. And if they are okay, the market's going to run, it's going to run hard. So all of our 20 companies that we have at investing Intel .ai, um, they're all going to go up and then running into earnings. They might go up even more if they have good earnings. And by the way, we put together this, this portfolio. If I go over here and I click on AI stocks, it'll show all of our portfolio. We put this portfolio together based on good earnings. So anything that didn't have good earnings and good earnings predictions for the next.

quarter work was cut. And so I'm very positive. I mean, this, this portfolio had a 20, 23 % run up between the beginning of last earnings and today. And I would hope we get at least five or 10 % again on this portfolio. We can't expect 20, 23 % after every earnings quarter. It'd be nice though. But, uh, but yeah, that's where I stand on all of that. Exciting to be going into earnings. I'm excited for earnings. Yeah.

Kai (22:16.941)
Well, yeah, I'm excited for a little volatility. I'm also excited for the volatility of this last week. It's good for trading. I think the market started to trade sideways. I don't like the action on Thursday. However, my take in particular is that,

traders and or managers are watching the news extremely closely and hanging on to the language in the news and everything. And so that may be moving the market substantially versus the overall economic conditions of the market actually making the move. So they're watching everything. And so if they hear one of the Fed members speak, I think that's more responsible for the sell off than actual market movement or.

James (22:43.342)
Iran. Yeah.

James (22:54.702)
Yeah.

Kai (23:06.541)
And so people just use it as an excuse to take profits. However, this next week, a few weeks and the earnings are going to be big. I definitely check out the website, the portfolio, at least of the AI stocks are great, especially as a long -term investment. However, one thing I would say is that when you're making...

decisions going long or short or investing or not, you typically want to start with the basics of just making a direction of the overall market and looking at the sectors. And so looking at the informational technology sector and saying, I expect a bear market in the next month. I expect the market to trade sideways, or I expect a bull market in the next month. And then.

James (23:39.214)
Yeah.

Kai (23:52.397)
You may look at the overall SMP NASDAQ. And so that's why, that's why you hear when people talk, they look at those things, they pay closely attention to those things, especially the equal weighted indexes for those things, because the first step is trying to determine a direction that you think it may go my direction. And particularly is what over the last week or two was sideways. Uh, what about you, James, over the next week or two? And, uh, what did you make a decision for this last week? What did you think?

James (24:18.222)
Yeah, this last week, you know, I, as I tell you, I did pull some things out this past week. I de -risked prior to the jobs report a little bit, and I'm kind of keeping that de -risked state on for CPI and PPI. I'm also a bit concerned about this. So as you see Israel, US believe Iran is about to retaliate for Israeli bombing of Syria consulate. So Syria consulate being the Iranian consulate in Syria. So my concern is that.

Iran would actually try to, rather than taking American lives or Israeli lives, my concern is they would try to just bomb oil refining or oil extracting locations. I think in the sea there or in the Gulf, you probably know the geography better than me, I'm stumbling trying to describe it, but I'm concerned that they could try to hit some of the oil extraction there.

Kai (25:09.933)
It's okay. Yeah. Oil. Let's just, let's just say oil's trading high at highs right now. Oil as a sector, energy as a sector is bullish. It is one of those sectors that we've seen an increase. Also, I, I've looked at some energy stocks as well. For example, if you look at NE is a defensive stock, however, it's sensitive. So it's a smaller cap stock, which can be a sensitive to the interest rates. And so I'm watching the treasury yields closely.

but you'll see NEEs kind of breaking through a resistance level, oil and gas is trading at highs right now. And so watching the particular sector and which way it's going. So when you're making some of these trades on AI stocks, you want to watch the informational technology sector or look at the particular sector and the S &P 500 trade with the direction of the market. Don't try to trade against it. If you're, for example, selling short an energy company that would

in the whole sectors going up, that's a little more risky. It's more risky than going with I always like going with the market as opposed to against so my I anticipate sideways trading.

James (26:14.798)
And trading in general, and trading in general, more risky than just buying and holding. So that's what I like to do with these companies. As you know, I've had a core position since early in the year and just haven't haven't changed those, those core positions. But yeah, so we have earnings from banks and airlines coming up this week. It'll be interesting to see what happens with the potential attack from Iran with CPI and PPI. CPI and PPI, I think are the most critical things.

That decides whether we go up or down. As you were just saying, we have a bad setup here. We have oil prices going up and we have interest rates around 4 .3. They've been going up the 10 year. So we have the same setup as last October when things crashed. And if CPI and PPI are hot, I think we could crash again. I think we could have a significant, not crash, but a significant draw down again. Yeah. Yeah.

Kai (27:00.781)
Correction. Correction. Yeah, I mean, we've been testing the 21 day and 10 day lines over this last week. We've seen up and down trading. So our up and down movement, so to speak. But yeah, check out. I mean, unlike for MU, it's an interesting one to watch. We've seen a little bit of a pullback. I do think it's a true AI play, especially due to the AI server demand. Unlike the stock we talked about last week, ISRG, which is a robotics platform for surgery.

James (27:10.67)
Yeah.

James (27:21.966)
Hmm. Yeah.

Kai (27:30.445)
is not a true AI play in my opinion, but a great company. Also check out MU's website, go on the company, read the earnings reports for yourselves. Also, I enjoy, it's always great to read the language used in evaluating companies. I look at three principles, integrity, intelligence, and energy, especially in regards to how they hire employees, some of their values they present, see if some of those things match.

the language that you're looking for in an artificially intelligent company that an AI play. And I like some of the language and I didn't like some of the language. I think that MU is a riskier play versus other AI Stikes. We've also talked about TSM. Check out our TSM episode as well on Taiwan Semi. I think it's less of a risky play than MU in this instance.

James (28:21.902)
Awesome. Yeah, so finishing up with our 30 seconds in AI, Lex Friedman just interviewed Sam Altman, the CEO of OpenAI, and Sam Altman was wildly concerned about getting shot in that interview. ChatGPT just opened up GPT -3 without requiring a login and has experienced significant downtime over the past week. Cloud3 Opus has been considered a superior model to OpenAI's GPT -4.

Apple announces a new realm model which can be used on the iPhone and may be integrated with Siri. And John Stewart's AI special on his daily show garnered 4 million views and went viral. Any reaction to any of those cool headlines from the AI world over the past week, Kai?

Kai (29:07.245)
I always have a reaction, James, but I always want to hear yours first.

James (29:08.142)
I mean, it's crazy. Like just everything is, everything is crazy. I mean, it's, I would say anyone who hasn't seen the John Stewart special, go watch it. Yeah. The John Stewart really nailed it. People are concerned about job losses and that's what he focused on in his special, but he did it in a funny, entertaining way. And it just goes to show that this stuff is mainstream now it's becoming more and more mainstream. More and more people are watching and concerned. And the fact that

chat GBT, I mean, Microsoft is buying all the, Microsoft is running the cloud for chat GBT. And so essentially Microsoft, the most valuable company in the world is going down due to demand for chat GBT. It's crazy. It's crazy.

Kai (29:53.869)
I'm excited just to watch the show, watch the narrative develop. We've talked about narrative previously and see how lots of exciting things going on. I'm expecting some volatility, which is great and more and more in the news going to come out regarding artificial intelligence. So thanks for having me again.

James (30:07.118)
Yeah.

James (30:11.022)
Awesome. Yeah, we'll be there to narrate and commentate along with the narrative. Thanks again, Kai, and we will see you next time.

Kai (30:21.613)
Absolutely. Have a good one, James.

James (30:23.406)
All right. So thank you for listening to our show. Please give us a review or rating or on YouTube, a like or comment. We'll be back in the next episode to cover more AI stocks. You can find all our holdings and trades at investingintel .ai.