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The announcement that Micron Technologies shares fell on Thursday raised questions about the impact of artificial intelligence on the performance of technology companies. This fall sparks discussions about the factors and mechanisms that can influence the financial market in increasingly complex ways.
The background of Micron Technologies
My name is Edouard, I am 37 years old and I am passionate about Machine Learning. Today we will analyze why the actions of Micron Technologies (NASDAQ: MU) fell on Thursday. These fluctuations were observed following the publication of the company’s quarterly financial report.
Robust financial results
For its third fiscal quarter 2024, closed on May 30, Micron generated revenue of $6.8 billion, up 82% from the previous year. This performance helped achieve adjusted earnings per share of $0.62, compared to a loss of $1.43 in the previous quarter.
Analysts had forecast revenue of $6.67 billion and adjusted earnings per share of $0.50, which Micron easily exceeded. The improved balance between supply and demand notably contributed to this result, as did robust demand for AI-related products.
The impact of AI on the bottom line
The demand for artificial intelligence (AI) boosted sales of Micron, especially in data centers. Sales for these segments climbed more than 50% sequentially, driven by high-margin products like high-bandwidth memory, high-capacity in-line memory modules and data center solid-state drives.
Market expectations
Since AI gained popularity, AI-related stocks have seen their historical valuations rise, and those of Micron are no exception. However, the market often incorporates high expectations of future earnings, making it difficult to accurately predict results.
For the upcoming fiscal fourth quarter, management forecasts revenue of $7.6 billion, representing 90% growth from the prior year. While this forecast is enviable, it exactly matches Wall Street’s consensus estimates, as investors hoped for better results.
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Valuation and investor expectations
Currently, Micron is selling for about 52 times current earnings and 126 times future earnings, leading to high, if not unrealistic, expectations from investors. A single quarterly release doesn’t determine an entire year, and management has likely been conservative in its forecasts.
It is crucial to note that the demand for artificial intelligence (AI) will manifest itself in fits and starts, despite its upward trajectory. 90% year-over-year growth is nothing to sneeze at, and investors should focus on the long term rather than current stock price movements.
Recommendations for investors
Before buying shares of Micron Technologies, remember to evaluate your expectations and consider alternative investment options. For example, the team of analysts Motley Fool Stock Advisor recently identified the 10 best stocks to buy right now, and Micron Technologies was not part of this selection.
It always helps to diversify your investments and follow a long-term strategy to maximize future returns.
