AI Spells Growth for Micron
Micron Technologies (MU) has a strong track record over the past year for exceeding earnings expectations, and I don't see any reason why that won't continue tonight. Even if MU disappoints, this is a name I'm looking to own because it lives in all the buzzword spaces of what's hot in the market without getting all the buzz. At least not yet.
Recent sales in the company's Storage Business Unit, specifically on the enterprise level, have soared over the past year, dramatically impacting Micron's bottom line. The driver behind the strong growth in the enterprise solid-state drives: AI. Whether you want to dub it artificial intelligence, machine learning or data analysis, the simple fact is more companies are turning to the cloud and data analysis. The latter requires huge amounts of information, whether from transactions or client information, and the need right now is not only for speed, but for data.
The more data, the greater the possibility AI can increase sales or efficiency in your business. And all this data must reside somewhere; whether it's in-house or on the cloud, storage is required. While some may think the cloud eases the need for storage, it simply shifts the burden. Micron benefits from that burden. It is a very real player in the AI space.
An offshoot of AI is autonomous vehicles. If I mention self-driving cars and ask what companies come to mind, I'll hear several different responses, but it's normally a cluster of names including: Nvidia (NVDA) , Tesla (TSLA) , Mobileye (MBLY) -- now part of Intel (INTC) -- and Waymo, part of Alphabet (GOOGL) . One name I don't hear is Micron, but we should. Micron is working with NVDA to produce higher bandwidth graphics memory (GDDR)6 memory solutions, as it outlined at the Mobile World Congress (MWC) Americas less than two weeks ago.
Ironically, this is high-performance memory often found in gaming. The company believes the storage requirements on fully autonomous vehicles could reach 1 terabyte and memory system bandwidths would need to be a minimum of 300 gigabytes per second. Currently, MU supplies automotive-grade low-power DDR (LPDDR) memory solutions up to 100 gigabytes per second, but a move into GDDR would propel MU into every discussion regarding autonomous vehicles.
Autonomous vehicles and AI go hand in hand, but they can also exist alone, so this isn't a case where Micron has all its eggs in one basket. In fact, those baskets are barely full at the moment, but they appear to be the future drivers of Micron's growth. Unfortunately, newer technology and rapid development of such often lead to unpredictable results quarter to quarter, so investors in Micron should prepare themselves for some volatile swings in price, but if we continue to see improvement in the enterprise Storage Business Unit and more discussion of self-driving cars, I wouldn't be shocked to see Micron trading around $50 by next summer.
Heading into earnings, I may take a slightly more conservative approach and use the elevated implied volatility levels to sell out-of-the-money puts with the thesis I either bank the premium or get to buy the stock at a lower price. For instance, selling the Oct. 20 $33.50 puts for $1.18 would either net me a 3.65% cash-backed return over 24 days (so 55.5% annualized) or have me buying the stock with a cost basis of $32.32. Slightly more conservative would be selling the Oct. 20 $33 put at $0.96 to have the cost basis of $32.04 should the stock fall under $33, or a return of 3% should Micron close October expiration above $33. Either way, I believe the risk-reward here is well worth considering.
At the time of publication, Collins was short MU puts, although positions may change at any time.