Please ensure Javascript is enabled for purposes of website accessibility

Is Micron Technology Stock a Buy?

By Leo Sun – Oct 12, 2021 at 7:10AM

Key Points

  • Micron’s investors have been rattled by concerns about a possible supply glut in the memory chip market.
  • The bulls believe the secular expansion of newer markets will help Micron overcome those challenges.
  • Micron faces tough year-over-year comparisons, but the stock’s low valuations should limit its downside potential.

Motley Fool Issues Rare “All In” Buy Alert

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The memory chip maker remains a battleground stock.

Micron Technology's (MU -3.65%) stock lost more than a quarter of its value over the past six months as investors fretted over a potential supply glut of memory chips. Its fourth-quarter report, released on Sept. 28, beat analysts' expectations on the top and bottom lines, but its stock still slipped after it offered weak guidance for the first quarter.

Micron's stock remains up more than 40% over the past 12 months, but it's becoming a battleground stock. The bulls claim Micron's stock is still cheap and that the company will still benefit from the secular growth of many chip-hungry sectors, while the bears point out that Micron's gross margins are under pressure and its growth has always been cyclical. Let's see which argument makes more sense. 

Sticks of DRAM in a PC motherboard.

Image source: Getty Images

Micron's cyclical recovery

Micron's revenue declined year over year for six consecutive quarters throughout 2019 and 2020, mainly due to a global glut of DRAM and NAND chips, before returning to growth in the third quarter of 2020. Its revenue growth then accelerated throughout 2021 as its non-GAAP gross and operating margins expanded.


Q4 2020

Q1 2021

Q2 2021

Q3 2021

Q4 2021

Revenue Growth (YOY)






Gross Margin*






Operating Margin*






YOY = Year over year. Source: Micron quarterly reports. *Non-GAAP.

Micron's recovery was driven by three factors. First, prices for DRAM and NAND memory chips stabilized as the glut ended. Stay-at-home trends during the pandemic boosted sales of memory chips for data centers, new PCs, and gaming consoles.

Second, the production of next-gen gaming consoles, new smartphones, connected vehicles, industrial machines, and 5G networking infrastructure devices all accelerated during the pandemic, keeping supply tight and prices high.

Lastly, Micron established a technological lead against its rivals with its 1-alpha DRAM and 176-layer NAND nodes, which are currently the most advanced high-volume production nodes for their respective markets. Those high-end nodes widened Micron's moat against Samsung, SK Hynix, Western Digital, and Kioxia in the crowded memory chip market.

Has the cycle peaked again?

Micron's growth in 2021 looks impressive, but Gartner expects DRAM and NAND prices to decline sharply in the second half of 2022. Trendforce expects DRAM prices to start tumbling sequentially in the fourth quarter of calendar 2021, and continue dropping throughout 2022. 

Those bearish expectations raise red flags for Micron, which generated 72% of its revenue from DRAM chips and 25% from NAND chips in fiscal 2021.

Micron's first-quarter forecast indicates that slowdown is already underway. It expects its revenue to rise 33% year over year, which marks a slowdown from its fourth quarter and misses analysts' expectations for 47% growth.

It expects its non-GAAP gross margin to decline about 90 basis points sequentially (but still rise year over- ear) to 47%, and for its non-GAAP earnings to rise about 169%, compared to expectations for 218% growth.

Micron hasn't been severely affected by the chip shortage yet, since it manufactures its chips at its own foundries instead of outsourcing them to contract chipmakers. However, it still expects shortages of other PC components -- such as CPUs and GPUs -- to curb the market's near-term demand for DRAM and NAND chips.

Micron is also starting to experience supply chain constraints related to certain IC components that are exposed to the global chip shortage, and it expects those constraints to further throttle its near-term bit shipments.

The expectations vs. the valuations

Micron didn't provide any exact guidance for fiscal 2022, but CEO Sanjay Mehrotra predicted it would still generate "record revenue with solid profitability" for the year amid healthy demand from the data center, server, automotive, and 5G markets.

That statement is vague, but analysts expect Micron's revenue and adjusted earnings to increase 16% and 48%, respectively, this year. Next year, they expect its revenue and earnings to rise another 16% and 25%, respectively.

Based on those growth rates, Micron's stock still looks dirt-cheap at 7.5 times forward earnings and just over 2.4 times forward sales. But Western Digital, which competes against Micron in the NAND market, looks even cheaper at five times forward earnings and less than one times this year's sales.

Investors seem reluctant to pay higher premiums for either stock because they dread a major supply glut in the second half of 2022 -- which could strike just as Micron resolves its near-term supply chain challenges. If that happens, Wall Street's estimates for Micron might be far too optimistic.

Micron is still worth buying

Micron's growth will decelerate this year against tough comparisons, but I believe the secular expansion of the 5G, automotive, and industrial Internet of Things markets will prevent memory prices from crashing. Therefore, I believe Micron's stock is still too cheap to ignore, and investors who buy some shares as the market frets over its near-term headwinds could still reap some impressive gains by the end of 2022.

Leo Sun has no position in any of the stocks mentioned. The Motley Fool recommends Gartner. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Nearly 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Micron Technology Stock Quote
Micron Technology
$55.55 (-3.65%) $-2.10

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 12/01/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.