TipRanks Smart Value #5: Semiconductor Strength
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Dear Investors,
Dear Investors,
Welcome to the fifth edition of our brand new TipRanks Smart Value Newsletter!
In each Newsletter, we aim to highlight an undervalued stock poised for long-term gains. Each week, our analysts will identify an overlooked opportunity – a company with strong fundamentals and a resilient business model, whose stock is trading below its intrinsic value.
▣ Note to Investors: As we enter uncharted territory with the onset of a global tariff war, markets are experiencing a notable surge in volatility. This environment has reduced visibility into earnings and valuations to nearly zero, leaving analysts at a loss on how to factor near-total uncertainty into their outlooks. However, markets will rally again sooner or later—as they always do. Given this backdrop, we choose to look past near-term unknowns and focus instead on strong fundamentals and sound business models, recommending quality stocks when their prices reach attractive levels relative to their industries and historical trends.
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This Week’s Top Value Pick: Micron Technology (MU)
Micron Technology (MU) is a global semiconductor company developing and manufacturing memory and storage solutions. The company has a rich portfolio of DRAM, NAND, and NOR memory and storage products, marketed under the Micron and Crucial brands. Its products have applications in consumer electronics, data centers, automotive systems, and industrial devices. Micron plays a critical role in enabling advancements in artificial intelligence (AI), 5G networks, and cloud computing infrastructure.
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Memory Milestones
Micron was founded as a semiconductor design consulting firm in 1978 in Boise, Idaho. Just three years later, the company entered manufacturing with its first wafer fabrication facility, producing 64K DRAM chips. By 1984, Micron had introduced the world’s smallest 256K DRAM, cementing its position as a pioneer in-memory technology.
During the 1990s and 2000s, Micron expanded rapidly through strategic acquisitions. In 1998, it acquired Texas Instruments’ DRAM business, becoming one of the world’s leading DRAM producers. A major milestone came in 2013 with the $2 billion acquisition of Elpida Memory, which gave Micron ownership of advanced DRAM fabs in Japan and significantly expanded its mobile DRAM capabilities — including as a key supplier to Apple. In 2017, Micron began construction of a new DRAM fab in Kitakami, Japan, which has since become a cornerstone of its next-generation DRAM production strategy. The 2016 acquisition of Inotera Memories, which became a wholly owned subsidiary, further boosted Micron’s production scale in Taiwan.
Micron also partnered with Intel to form IM Flash Technologies, a joint venture focused on NAND flash and 3D XPoint memory. In 2021, it sold the IM Flash fab in Lehi, Utah, to Texas Instruments for $900 million as part of a broader strategy to streamline operations and focus on core assets. In 2010, Micron diversified into NOR flash memory through its acquisition of Numonyx. More recently, Micron has doubled down on innovation in high-performance memory solutions for AI, cloud computing, and automotive markets. The company is also investing heavily in U.S.-based fabs, to strengthen domestic semiconductor manufacturing.
Today, Micron is the fifth-largest semiconductor company in the U.S., wielding a market cap of over $75 billion. With TTM revenues of over $31 billion, MU is ranked #264 on the Fortune 500 list.
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Memory Powerhouse
Micron’s vertically integrated model spans design, manufacturing, and distribution of memory and storage products. The company derives revenue primarily from its DRAM, NAND, and NOR flash memory products, which power applications across data centers, mobile devices, PCs, industrial systems, automotive technologies, and embedded systems.
The company’s DRAM products are dynamic random access memory semiconductor devices with low latency widely used in data centers, PCs, graphics, and automotive sectors. NAND, a non-volatile memory, offers high-capacity, low-cost storage for SSDs and consumer devices. NOR provides fast read speeds and reliable code storage, ideal for automotive and industrial embedded systems.
Micron’s operations are structured across four business units: Compute and Networking (CNBU), Mobile (MBU), Storage (SBU), and Embedded (EBU), allowing it to serve a diversified global customer base. CNBU supports data centers and PCs with products like DDR and high-bandwidth memory (HBM) products. EBU focuses on embedded markets such as automotive and industrial with discrete and module DRAM, discrete NAND, managed NAND, soild state drives (SSDs), and NOR. MBU supplies mobile device manufacturers with memory storage products, while SBU targets data center and consumer storage needs with SSDs and component-level storage solutions.
In response to the rising demand for AI, Micron is expanding its HBM capacity. The company has begun construction of a $7 billion advanced packaging facility in Singapore, with operations slated to begin in 2026 and significant capacity expansion expected by 2027. Additionally, Micron plans to build a new DRAM fabrication facility in Idaho, which is anticipated to commence production by 2026. The company is also investing up to $100 billion over the next 20-plus years to construct a megafab in Clay, New York.
The chip giant balances in-house production with subcontracting to stay agile amid supply shifts. Its “no demand left behind” strategy optimizes lead times during oversupply periods. Meanwhile, R&D efforts focus on innovations like DDR5 DRAM and next-gen HBM.
Micron serves as the U.S. importer of record for a very limited volume of products subject to newly announced tariffs on Canada, Mexico, and China. The direct financial impact from these tariffs is expected to be minimal. The company is monitoring developments and working with suppliers and customers to manage potential impacts. Where applicable, Micron plans to pass tariff-related costs on to customers, a strategy that supports profitability but may affect demand. Micron is also exploring alternative supply chain strategies, including sourcing from non-tariff-affected regions and reconfiguring logistics flows, to mitigate any indirect effects from trade policy changes. These efforts are part of its broader risk management strategy to ensure operational resilience and protect margins in a volatile geopolitical environment.
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AI Tailwinds
Micron has demonstrated strong financial performance over the past five years – despite the highly cyclical nature of the semiconductor industry – with revenues and earnings growing at a CAGR of 9.8% and 15.5%, respectively. This growth has been fueled by rising demand for high-performance memory solutions, driven by AI adoption, 5G rollout, cloud computing, and product innovation such as 1-gamma DRAM.
In fiscal Q2 2025, Micron’s adjusted EPS more than doubled year-over-year to $1.56, strongly beating consensus estimates. Revenue surged 38.3% to $8.05 billion, also far exceeding forecasts. These results were driven primarily by data center sales that tripled year-over-year. However, gross margin declined 160 basis points to 37.9% due to pricing pressure and underutilization in NAND production amid an industry down cycle.
Looking ahead, FQ3 revenue is projected at $8.8 billion, with EPS of $1.57, both ahead of the consensus estimates at midpoint. Adjusted gross margin is expected to dip below estimates of 37.4%, due to continued NAND underutilization and a higher mix of consumer shipments. Micron forecasts DRAM bit demand growth in the mid-to-high teens and NAND in the low double-digit percentage for calendar 2025. Over the medium term, it expects industry bit demand to grow in the mid-teens annually for both DRAM and NAND.
To meet demand while managing capacity, Micron is expanding manufacturing and planning a 10% structural wafer capacity reduction in NAND by the fiscal year-end. It expects tight DRAM inventory in FY25 and is aligning capex, node ramps, and fab utilization with demand. Capital spending remains steady at ~$14 billion, with major investments in DRAM and HBM manufacturing facilities in Idaho, Singapore, and Taiwan.
In the PC market, unit shipments projected to rise in the mid-single digits in 2025, particularly in the second half, driven by the end of Windows 10 support and rising demand for AI-capable PCs, which require 16GB or more of DRAM. Smartphone unit growth is expected to remain in the low single digits, though AI features are pushing average DRAM content above 12GB. In the automotive segment, rising memory and storage content per vehicle is being fueled by advanced infotainment systems and driver-assistance technologies. Meanwhile, the industrial market is nearing the end of inventory adjustments, setting the stage for renewed adoption of embedded memory solutions.
High-bandwidth memory (HBM) is a key growth engine for Micron. The chip giant has sold out its HBM supply for 2025 and expects the total market for HBM to exceed $35 billion by the end of this year. Micron has ramped up HBM3E production and is targeting a 20–25% HBM market share by the end of 2025, with HBM4 on track to launch in 2026 offering over 60% more bandwidth than current-generation HBM3E.
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Valuation Reset
Micron initiated its dividend program in 2021 and has consistently paid quarterly dividends since. In early 2022, the dividend was raised from $0.10 to $0.115 per share, where it has remained ever since. Although the dividend yield at just 0.62% is considered modest, Micron’s low payout ratio and strong earnings growth support the outlook for future dividend increases.
In addition to dividends, Micron’s capital return strategy includes share repurchases. Since authorizing a $10 billion buyback in 2018, the company has repurchased $7.19 billion worth of stock as of February 27, 2025, although no buybacks occurred in the first half of this year. However, Micron’s receipt of $6.1 billion in CHIPS Act funding in December 2024 comes with restrictions: while it doesn’t prohibit dividends or buybacks outright, it limits indirect use of federal funds for these purposes. If these provisions remain in place under a second Trump administration, limitations on shareholder returns could persist.
Over the past year, MU stock has declined by 44.4% and is currently trading just above its 52-week low. The stock has been weighed down by broader macroeconomic headwinds, while Micron has faced company-specific challenges, including NAND underutilization and margin pressures driven by soft consumer memory pricing.
As a result, MU is now trading at a P/E ratio of 12.6x, reflecting a discount of approximately 33.4% compared to the semiconductor sector’s average. Additionally, the stock is trading around 23% below its own long-term average, positioning it as one of the more attractively valued semiconductor stocks in the market. Furthermore, discounted cash flow models suggest MU is undervalued by about 47%, reinforcing its appeal as a compelling investment opportunity.
Wall Street analysts share this optimism, forecasting an upside of 89.6% for the next 12 months. The most bullish projections – coming from Rosenblatt, Baird, and DBS – suggest an even more significant gain of over 120%, reflecting confidence in MU’s long-term growth strategy.
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Investing Takeaway
Micron’s recent drop mirrored a broader sell-off in tech stocks, particularly those with foreign production exposure – but the long-term investment case remains intact. The company continues to demonstrate strong fundamentals, including leadership in memory innovation, increasing exposure to AI tailwinds, and prudent capital management. Trading at a notable discount to the sector average multiples and significantly below its long-term valuation, Micron appears quite undervalued. Its diversified revenue streams and solid free cash flow further strengthen its foundation. While short-term volatility may persist, the stock’s current weakness presents a compelling entry point for value-focused investors looking to capitalize on Micron’s long-term growth prospects.
