Micron Technology (MU 0.47%) has been experiencing incredible demand for its memory and storage products as companies invest in next-gen computing capabilities. Elevated spending as a result of new opportunities related to artificial intelligence (AI) has resulted in some terrific growth for Micron.
The demand has been so strong that there has been a shortage of memory and storage products, and Micron has been able to significantly raise prices, accelerating its growth rate. The stock has been soaring in value amid the excitement; it’s up around 480% over the past 12 months.
But before you rush out to buy the stock, there’s one important chart that you need to see first.
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Micron’s growth has been extremely volatile over the years
While Micron is doing exceptionally well these days, and demand appears to be growing well due to AI, that doesn’t mean things will stay that way for long. Historically, Micron has experienced significant swings in demand. And although its growth rate is incredibly strong right now, it may inevitably come down, as it has in the past. The chart below illustrates why investors may want to brace for a potential slowdown in the near future.
MU Revenue (Quarterly YoY Growth) data by YCharts
With sales up 196% in its most recent quarter, the growth it’s experiencing right now is high, even by Micron’s standards. But the higher it goes, the more it may have to fall in future quarters. And when an inevitable slowdown occurs, it could have a crippling effect on the tech stock.
The stock is down 20% from its high
There has been some softness in Micron’s stock in recent weeks, as it has been declining, perhaps as investors worry its rally is getting a bit too hot. Entering Tuesday’s trading, the stock was down 20% from its 52-week high of $471.34. Although it’s still up more than 30% since the start of the year, investors may be having second thoughts about its valuation.
Technically, the stock doesn’t look all that expensive, as it trades at just 18 times trailing earnings; the S&P 500 average is nearly 24. By comparison, Micron looks cheap. However, that’s also with the company benefiting from exceptionally strong earnings, boosted by higher product prices. If those prices come down and overall demand also declines, there could yet again be a significant deterioration in its growth rate, as has happened in the past.
Today’s Change
(-0.47%) $-1.79
Current Price
$375.97
Market Cap
$426B
Day’s Range
$364.10 – $379.10
52wk Range
$63.52 – $471.34
Volume
755K
Avg Vol
41M
Gross Margin
58.54%
Dividend Yield
0.13%
If you’re thinking about buying Micron’s stock today, you need to consider the risks. Assuming that demand will continue to soar and that Micron’s growth rate won’t slow is dangerous, as it can lead to losses. While it may still be a good buy today, as demand remains strong and a shortage persists in the market for memory and storage products, once that changes, the stock could be headed for a substantial pullback. It’s important to plan and prepare accordingly.