Key Points
Micron Technology (NASDAQ: MU) delivered spectacular fiscal third-quarter earnings when it reported results on June 24. However, after an initial jump in its stock price sent its shares to an all-time high of $1,255, it has now suddenly lost a quarter of its value in the preceding weeks.
With earnings by themselves unable to lift the stock, could a stock split be around the corner?
Revenue and EPS surge amid demand
Even with the dip in its share price, Micron’s stock is still up a whopping 650% over the past year. The gains are also well deserved, as the company has seen its revenue skyrocket and gross margins balloon over the past year. For fiscal Q3, its revenue surged from $9.3 billion a year ago to $41.5 billion, while its gross margins expanded from 37.7% to 84.6%. That helped its adjusted EPS skyrocket to $25.11 from just $1.91 a year earlier.
Micron’s strong results are being driven by supply-demand imbalances in both the DRAM (dynamic random access memory) and NAND (flash) memory markets. Last quarter, 76% of its revenue came from DRAM and the rest from NAND. The shortages stem from the high demand for AI infrastructure.
A special form of DRAM, called high-bandwidth memory (HBM), is needed to optimize graphics processing unit (GPU) performance, and this is becoming even more important for inference. Meanwhile, AI data centers need massive SSDs (solid state drives) that use flash memory to store data for long-term use.
The result is that both DRAM and NAND prices continue to skyrocket. And while Micron and others in the space are working to increase capacity, they are struggling to keep up with demand.
In good news for the industry, the big three DRAM makers, including SK Hynix and Samsung, have all been locking in long-term contracts for the first time. For its part, Micron has said it now has around 40% of its revenue tied to these long-term agreements.
Is a stock split coming?
With earnings failing to lift its stock and it still sitting over $900, Micron could turn toward a stock split to boost its stock price. It has split its stock three times in its history, but the last was more than 20 years ago, in May 2000, when it did a 2-for-1 split. While this doesn’t change the company’s fundamental story, a lower stock price could help draw more retail investors.
That said, the biggest catalyst for the stock in the coming years would be its tying more of its revenue to longer-term agreements to help shed some of the cyclicality of its business. The stock is cheap, trading at a forward P/E of just over 6 times fiscal 2027 estimates, but it needs to show that this cycle will last and that it can maintain strong pricing. If it can do this, then it is an AI stock worth buying, split or no split.
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Geoffrey Seiler 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.
