Our Biggest Gainers & Losers of the Day in the $100,000 Build Portfolio

For the 27th September 2024:

You got me. I admit it. I might have a crystal ball.

I shouted out LVMH on Sunday & we’re up 16% now. At the start of the month I gave the nod to Micron Technology & they’re up just shy of 20% since.

The great news is it’s not too late to get in on either of these stocks. And with Micron’s latest earnings report, it looks like they’re on just getting started. They’ve quietly positioned themselves at the front of the AI boom & yet everyone still seems to be sleeping on them.

Let’s take a closer look 🔍

Micron just reported its Q4 earnings & they smashed it. Revenue came in at $7.8 Billion which is up 93% year-over-year (YoY) & 14% quarter-over-quarter (QoQ). They spanked their targets by $105 million on revenue & $0.07 per share in earnings.

The market woke up then & they jumped as high as 20% on the day before closing somewhere around 14% up.

That report was a win-win all around but what’s driving the growth? Is it a temporary boost or is it here for the long haul?

Turns out, Micron’s HBM3E memory is where it’s coming from. (Short for High-Bandwidth Memory Version 3E). It’s designed to handle the insane data demands of artificial intelligence.

Demand for that is definitely here for the long haul. 👇

AI is here to stay. And it’s not even remotely done with it’s innovation & development yet. It’s going to need more & more high-bandwidth memory (HBM) as it scales.

Data centers, autonomous vehicles, machine learning models—they all need fast, efficient memory to run. Guess who’s one of the leaders in supplying that memory? You guessed it. Micron.

You ever heard the phrase “During a gold rush, shell shovels"? That’s to say you can make faster, easier cash by selling the tools for the digging rather than doing the actual digging.

That’s where Micron are positioning themselves. But instead of selling shovels to miners, they’re selling HBM to Nvidia, AMD, Apple etc. Pretty nice client base to have.😅

So we’ve established the demand is likely here for a while yet. Now we need to know how big can this market get?

Micron’s management think AI-driven total addressable market (TAM) for HBM is expected to explode from $4 billion in FY 2023 to $25 billion by 2025. 📈 That’s 6.25x growth in a couple of years. For a company that’s already shipping products like crazy & nearly doubling revenue year-on-year. the G-force on this rocket could get wild. 🚀🌕

And we’re not done yet...

Micron’s next-gen 12-hi HBM3E memory is set to launch in 2025. This bad boy offers 50% higher DRAM (another type of memory used in computers) capacity & uses 20% less energy. 💡 In short, it’s better, cheaper to run & ready to hit the market as demand is soaring. Micron have got all their buckets out reading for when it starts raining money.

Even after the now 12% jump on earnings, Micron’s still being slept on. Their forward P/E ratio (a way to measure how expensive or cheap a company is by comparing it’s current price to expected earnings in the next year) is sitting at around 9X. That’s outrageously low for their strategic positioning in the AI market.

For context, a company like Nvidia (NVDA) is trading at a forward P/E ratio of around 35X. Now, I love Nvidia just as much as the next guy but the gap in valuation here is hard to justify, especially when Micron’s earnings potential is just as explosive.

With AI booming & Micron’s margins getting better & better you’d expect the stock price to reflect that, but it doesn’t. Yet. For my money, this makes Micron one of the best value plays in the semiconductor space right now & one of the only stocks where you’re not paying an insane premium for AI growth.

But that’s enough opinions. Let’s see what the numbers say.

If we use a forward P/E of 10X & an FY 2026 EPS estimate of $12.76 that’d leave Micron somewhere closer to $127. But if Micron continues to grow the way it is & get’s closer to a conservative 15x multiple it’d be closer to $191 per share. 🤯 And for context on how conservative 15x would be, the sector average is upwards of 25x….

There are some reasons why the valuations might be so low & people aren’t catching on.

Investors might be worried about Micron’s cyclical nature. Historically, memory & storage have been boom-and-bust industries. Periods of super high demand followed by droughts. But I think it might be different this time.

Why?

AI isn’t cyclical. It’s a structural shift in technology that’s going to keep driving demand for years.

AI hardware investments are on the rise & they’re not slowing down any time soon. In fact, customers like Nvidia & AMD are rolling out new chips & AI products at a faster rate than ever before. That means they need to upgrade more often. We already know who they look at to help them with those upgrades 👀

While this is all going on. the rest of the market might still think of Micron as a cyclical stock. I see it as a long-term play in a company that can get a stranglehold on AI infrastructure by being established in the market. The memory boom tied to AI is just getting started. Micron have been busy digging their moat & could really own this space in the future.

Let me stop myself for a second before I get carried away. Let’s give a nod to the risks & think about what could go wrong so we’ve got a a balanced view.

The biggest risk? Margins. The semiconductor industry can be brutal when it comes to margins. One bad quarter & they can contract. Fast.

There’s not been any signs of that yet. Quite the opposite actually, their margins have increased by 8.4 percentage points.

But if Micron’s margin expansion slows down or reverses, that’s going to be a red flag. In fact, if we start seeing lower gross margins, it could signal a broader downturn in the semiconductor space, which would definitely put a dent in the stock price.

I have to be honest, I feel like I’m writing a horror story for the thrill of it. Micron’s Q1'25 guidance shows no sign of slowing down. They’re projecting $8.7 billion in revenue (give or take $200M), which is way ahead of Wall Street’s expectations of $8.27 billion. And they’re guiding for even higher margins next quarter at 39.5% non-GAAP gross margin, up 3 percentage points QoQ.

For now, things are looking good.

With a lot of other companies priced for perfection in AI, Micron is the value play. It’s still flying under the radar with a bunch of catalysts lined up so only a matter of time before the market catches on. You always want to be on the better side of “Buy the rumor, sell the news”

Demand for AI memory is only going to grow, revenue & margins on the rise, plus a dirt-cheap valuation compared to its peers, I think Micron is a serious contender if you’re looking to ride the AI boom without overpaying.

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That’s all! See you same time tomorrow 👋

P.S Hit reply & let me know what you thought of today’s newsletter. All feedback is welcomed ❤️