00:00 Micron Technology supplies memory and storage hardware to some of the world's largest companies.
00:06 Its DRAM products help to power iPhones, smart vehicles, data centers and more, while NAND,
00:12 flash and SSD drives are used for storage. Based on the latest share price, Micron has
00:17 a market cap of $81 billion. With $12 billion of cash and investments and $12 billion of
00:23 long term debt, the enterprise value is roughly the same. Meanwhile, the company has produced
00:27 $23 billion in revenue over the last 12 months, $9.6 billion of EBITDA, but only $1.6 billion
00:34 of net income. So Micron is valued at 3.5 times revenue, 8.4 times EBITDA and 51 times
00:42 earnings. Micron is a tricky company to value. On the
00:45 one hand, the company should be well positioned as a beneficiary of huge trends like artificial
00:50 intelligence, 5G and electric vehicles. On the other hand, Micron is a cyclical stock
00:56 that has seen wild swings in revenue. Revenue collapsed 23% in 2016, 23% again in 2019 and
01:04 this year looks like it will see a similar decline. Even worse, margins collapsed in
01:08 the last quarter with the company posting a negative gross margin of -33% and a record
01:14 loss of $2.31 billion. The Micron CEO said that the semiconductor
01:19 memory and storage industry is facing its worst downturn in the last 13 years with an
01:24 exceptionally weak pricing environment. Micron's figures were published before news that China
01:30 is to ban sales of Micron's memory chips. Micron derives more than 10% of its revenue
01:35 from China, so this news should be significant. And yet Micron's stock is up almost 8% since
01:41 the news broke. So what's going on? The main reason is the blowout earnings from
01:45 Nvidia which is providing a tailwind to semiconductor and memory stocks across the board. Data centres
01:51 and large language models require large amounts of memory, so Micron is seen as another AI
01:56 play and Micron's products are in high demand. But Micron still struggles to maintain pricing
02:02 power. Super investors like Monish Pabrai claim that shrinking competition in the memory
02:07 business will lead to more stable pricing and smaller swings, but that is clearly not
02:11 playing out as seen by the recent collapse in revenue. Meanwhile, China has the resources
02:16 to invest heavily into this market and potentially become a major player.
02:20 Overall, there's not enough evidence that Micron can escape the cyclical nature of its
02:25 business and that makes the stock a risky bet. However, the AI trend is so big that
02:30 Micron is probably going to ride the AI hype train for a little while longer. Artificial
02:35 intelligence is clearly not a fad and it's something that big companies are spending
02:40 huge amounts of money on. That's why I'm giving the stock a cautious bullish rating,
02:44 but these are my personal opinions, not financial advice and I do own a small position in the
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