In the past 12 months, shares of Micron Technology (MU +0.90%) have more than quadrupled in value. The company has experienced significant demand for its memory and storage products. Meanwhile, investors and analysts continue to see much more growth ahead due to the build-out in artificial intelligence as hyperscalers remain aggressive in their growth efforts.
Micron's growth has been so impressive that even with such massive gains in its share price, it still looks cheap based on its earnings -- it trades at only six times its estimated future profits. That suggests the stock may still have more upside, given the additional growth analysts expect from the company in the near future. But before you get excited, it's important to consider just why the results have been so strong for Micron.
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Prices have been rising significantly
In Micron's most recent quarter, which ended on Feb. 26, the company's revenue totaled $23.9 billion -- roughly triple the $8.1 billion it posted in the same period a year ago. And on the bottom line, the result was even more staggering, as net income of $13.8 billion was nearly nine times the $1.6 billion it reported in the prior-year period.
Micron says that the revenue growth was largely due to a sharp increase in prices. In its DRAM products, revenue rose by 207%, and it says that was primarily due to a mid-110% increase in average selling prices; shipments rose by just a mid-40%. For NAND products, it was a similar story: sales rose by 169%, as average selling prices more than doubled.
The problem is that in future quarters, Micron will be going up against these strong numbers, and unless prices continue to rise at a fast pace, the company's growth rate will inevitably slow down. In the worst-case scenario, where supply even ends up catching up to demand, and prices come down, Micron's growth may even turn negative. That may be a long way off, as analysts still see a market shortage potentially continuing into next year, but it's a risk investors need to be aware of.
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Is Micron's stock worth investing in today?
There's been a recent pullback in Micron's stock as investors appear to be growing concerned with just how fast it has been rising. It's down more than 20% from its 52-week high of $471.34, but its valuation remains above $400 million, making it one of the more valuable tech companies in the world.
Micron looks to still have more growth ahead, and there could very well be plenty of upside for its stock in the near future, given the relentless demand for storage and memory products. But given how much prices can affect its numbers, investors should tread carefully and keep an eye on market developments. If there are signs that the shortage may be ending, it could be time to offload the stock.
