MU’s revenue rises 16% off the digital economy – is Micron Technologies a good investment?

Micron Technology (NASDAQ: MU) is rising in pre-market trading after posting impressive financials for Q3 of 2020. In the current market, where greed and fear are on steroids, it is refreshing to see a stock rise because of a fundamental improvement in the company. However, an increase in financials is just a small part of the pie. With the carnage of COVID-19 magnifying the potential for chip and data storage producers, such as Micron Technology, expanding off an online economy is growing.

Table of contents 
1. What was so pleasing about MU's financials?
2. Micron's outlook during the COVID-19 storm. 
3. Is Micron technology a viable investment?


Micron Technologies’ Q3 financials cause Wall Street rally

MU focuses on dynamic random access memory (DRAM), and Negative-AND (NAND) memory chips. DRAM memory chips is usually employed in PCs, whereas NAND chips are the flash memory chips commonly used within USB drives. Thus it should come as no surprise that Micron’s financials surged off the back off a growing stay at home economy, which is somewhat reliant on PCs and USB’s. The key financial improvements include:

  • Non-GAAP EPS of $0.82 – which beat expectations by $0.06.
  • GAAP EPS of $0.71 – which exceeded expectations by $0.07.
  • Revenue increased by 13.6% year on year (YOY) totalling $5.44 billion – which beat expectations by $130 million.
  • Gross margin profit of 32.4%
  • DRAM sales were up 16% from Q2 and 6% YOY
  • NAND sales were up 10% from Q2 and 50% YOY

Overall, MU’s increase in financials demonstrated the company could grow despite the current macro challenges. Hence, Wall street investors are rewarding MU with their wallets in pre-market trading.


MU’s financial outlook during COVID-19

Despite the COVID-19 supply chain disruptions, Micron expects the financial health of the company to stay intact. MU’s Q4 financial guidance puts revenue at $5.75-6.25 billion, gross margin between 34-37%, and EPS at $0.95-1.15. Overall, the management at Micron see the company weathering the COVOID-19 storm. Mainly because an online economy, will only fuel even more sales growth for DRAM and NAND chips.

Is Micron Technologies a viable investment while COVID-19 worsens?

Before I start, I am obliged to remind our viewers that this is not advice only general commentary from my extensive research in this area. 

Short answer: Yes MU could potentially be a viable investment however, make sure you understand the risk of inflated sales predictions.

Long term approach

Usually we cover the short and long term strategies on stocks. However, in the case of Micron a short term investment seems like too much effort with little reward, unless you hold a lot of capital. (opinion not advice). MU could be a great long-term investment for three reasons.

First, the coronavirus is not going away. Second wave fears and any further restrictions will cause the online economy to kick up a gear. In turn, MU should continue to see sales growth for Q4 and Q1 of 2021. Second, technology is becoming a safe haven in the current bearish market (opinion not advice). Because the future direction industries of travel, retail, and food remain uncertain while the direction for technology appears to be forward. Lastly, the digital age after COVID-19 will take off whether we like it or not meaning. Hence over time MU should experience an increase in its bottom line. Ultimately, fuelling share price growth.

Risks with a MU investment

However, I would strongly suggest not investing purely off an increase in forecasted sales. Because in the environment where COVID-19 predictions are changing by the week, sales could be worse than expected or worse there could be an oversupply. Also past performance is not an indicator of future performance. Meaning MU’s impressive financial growth does not guarantee financial prosperity in Q4 2020 or Q1 of 2021.

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The information above is not financial advice. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.

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Written by Patrick McLoughlin, Senior Manager of YIG.

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