The Biggest Gains for This AI Stock's Business May Be Yet to Come

Artificial intelligence is inspiring companies to make massive investments of capital. Much of that money is slated to go to the businesses that produce essential components for hardware to run AI-powered applications and harness the data necessary to produce the most valuable insights. For companies that specialize in producing those components, every news item boasting of another multi-billion dollar investment in AI is a reason to celebrate.

Micron Technology (NASDAQ: MU) has put itself in exactly that position as an essential supplier of memory chips for AI hardware, and yesterday, the first article in this series on Micron for the Voyager Portfolio looked at the company's inspiring history and rise to the pinnacle of the tech industry. Today, you'll learn more about Micron's financial results and why the best of times might still be well into the future.

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2 perspectives on Micron's move higher

One thing investors can learn a lot from with Micron's financial results is that when you start a comparison makes a huge difference. Both of the following narratives are completely true, but they paint very different pictures of Micron's growth:

• Over the past 12 months, Micron's revenue has been nearly triple what it was during the company's 2023 fiscal year. The semiconductor memory chipmaker has gone from a huge loss of $5.8 billion three years ago to net income of $11.9 billion over the past four quarters. Margins have enjoyed explosive growth.
• Micron sales are up just under 40% since the chipmaker's strong year in fiscal 2022. Operating and profit margins have only recently returned to their same levels from four years ago, and the 37% rise in net income, although solid, seems out of proportion with the stock's much larger gains over the same period.

The way to reconcile those two views is to understand that historically, Micron's memory chip business has followed the ups and downs of the technology business cycle. At certain times, Micron's chips are in huge demand, and the high prices it's able to command for the chips it's able to produce lead Micron to make investments to boost capacity. Inevitably, though, that spike in demand has been followed by a softening of the market for Micron's components. At that point -- just as we saw during the bear market in calendar 2022 -- sales can take a huge hit. It's therefore crucial to be sure that in comparing Micron's recent results with older numbers, you measure from peak to peak or trough to trough. At the very least, avoiding mismatched comparisons avoids embarrassing miscalculations about what the future is likely to bring.

The supply crunch is here

What might be different now, though, is how long Micron will be able to remain on a cyclical upswing. In its most recent quarterly conference call, Micron said that it already had completed agreements with set price and volume terms for its entire supply of high-bandwidth memory for the 2026 calendar year. CEO Sanjay Mehrotra now expects the size of the total addressable memory market to nearly triple from $35 billion in 2025 to $100 billion in 2028. Micron had initially believed it would take until 2030 for the memory market to grow so much, and it's set to eclipse what had been the size of the entire dynamic random access memory market as recently as 2024.

If Micron can take advantage of strong supply and-demand dynamics and start asserting pricing power more effectively, then the financial growth we've seen from the chipmaker so far could be just the tip of the iceberg. The third and final article of this Voyager Portfolio series on Micron will look more closely at the tech pioneer's strategic growth plans and whether they justify the hug rise in the memory chip stock's price.

Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Micron Technology. The Motley Fool has a disclosure policy.