At first glance, Micron Technology (NASDAQ: MU) might not look like a slam-dunk buy today.
The designer and maker of computer memory chips is not profitable on a trailing-12-month basis. That's true for Micron's free cash flows, too -- they have been negative over the last four quarters. Trailing sales are down 34% from the all-time highs seen in the summer of 2022.
And investors don't seem thrilled about these financials, either. Micron's stock price is down 39% from its all-time high reached two months ago. The company's stock chart looks like an extra-volatile version of tech-sector trackers like the Invesco QQQ Trust (NASDAQ: QQQ) over the last five months -- and that's not a compliment:
But here I am, recommending Micron as a great buy in August 2024. The company is unprofitable, sales are down, and the stock price is crashing. How could this confluence of bearish signs add up to a "buy" signal?
There's more to Micron's story. Let me show you.
Micron's recent struggles
Micron's sales and profits have indeed dipped very low recently. Starting from the third fiscal quarter of 2022, trailing revenues fell more than 27% over the next five quarters. Adjusted earnings per share dipped to a negative $6.05 per share, and the annual cash born topped out at $6.1 billion.
Ouch. And that's supposed to be a leading hardware provider in the middle of an explosive boom in the artificial intelligence (AI) market?
That's a hard pass for some investors, but I think it's a big mistake to stop your Micron analysis there.
Why Micron matters in this golden AI age
You see, Micron is absolutely tapped into the AI opportunity. Computer systems built for training advanced AI software require lots of memory. So do the systems that deliver consumer-friendly (or enterprise-ready) AI services when the training is done.
And you know what your smartphone needs if you want it to deliver AI services without a cloud computing hub? That's right -- plenty of memory! For example, the base model of Alphabet's (NASDAQ: GOOG)(NASDAQ: GOOGL) Pixel 9 phone comes with several AI features, including the Gemini voice assistant and photo-finishing tools.
It also carries 12 gigabytes of RAM, up from 8 gigabytes in last year's less AI-packed Pixel 8. That's an above-average memory increase -- the Pixel 8 had the same memory setup as the ancient Pixel 5, which Alphabet released in the fall of 2020.
The latest wave of AI-enabled flagship phones is expected to inspire a large number of upgrades from older, AI-less handsets. The combination of more phone sales and more memory per phone should give Micron a massive revenue boost -- and that's just the smartphone piece of the AI puzzle.
The positive trends are stacking up!
The AI-powered surge is already underway.
Micron's third-quarter sales rose 82% year over year, and your average analyst expects an even larger top-line boost in the fourth quarter.
Both adjusted and unadjusted earnings have been positive in the last two quarters and should continue to rise for the foreseeable future.
Free cash flows also emerged into positive territory in the last quarter. Analysts rarely provide estimates for this metric, but Micron's cash flows should increase as long as the bottom line is rising.
Micron operates in a highly cyclical industry, and it's high time for another upswing. The only type of market timing I recommend is keeping an eye open for great companies with low share prices, and that's where you'll find Micron today. The stock is changing hands at the bargain-bin valuation of 9.8 times forward earnings estimates, and that's based on consensus projections from a group that tends to set Micron's earnings bar too low.
I expect impressive results from Micron as the AI boom plays out, and the stock is on fire sale today. You should consider grabbing a few shares of this high-quality semiconductor stock on the cheap.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Anders Bylund has positions in Alphabet and Micron Technology. The Motley Fool has positions in and recommends Alphabet. The Motley Fool has a disclosure policy.
1 Artificial Intelligence (AI) Stock to Buy Hand Over Fist Amid the Sell-Off was originally published by The Motley Fool