Chip Stock Investor on $MU (Oct 29, 2026)

Other question was on Micron, regarding valuation.

Given Micron's supply is sold out until 2029 or so, I think it would be safer to say maybe fiscal 2028 for Micron.

They didn't quite comment on 2029 exactly, but we'll get to that in the course of this presentation. Would it make sense to value beyond the three-year period where the growth bar is 9%, which makes it look quite cheap, but if we stretch the timeframe out, this isn't cheap anymore.

I guess we'd love to understand how to think about the metrics for these cyclical companies and can't find the articles, videos where you pointed this out.

So Micron, SK hynix, Sandisk, all of them. But they look cheap, not because the market is wrong about the future outcome.

We also don't know what lies beyond some of these longer term agreements, companies like Micron and SK hynix and Samsung have been signing.

So with that said, I wanna walk through a couple of things here on Micron. So first things first, Micron is an IDM.

And so it begs the question, why is Micron so cheap? This is ridiculous. Surely the market is wrong. And if you do a reverse DCF, yeah, currently Micron trading at trailing 12 month PE ratio of about 13x and even lower on a forward looking basis.

Just in the next year alone, Micron will generate several times more profit than what this calculation is forecasting over the next three years alone in just one year.

With this one, is it really feasible that Micron continues earning a 60% plus net profit margin for forever, 63%?

Micron is going to start lapping the massive revenue increases they just logged this last year, and so I'd expect the revenue growth rate dips down into just double digits, 50% CAGR for three years from where we're at right now would be epic to say the least.

So what does that get us today on a normalized PE ratio three years from now, Micron is trading more at like a 17X PE multiple, not 13.

What's happening with the market is it wants to pull in three years' worth of profit and value Micron and the other highly cyclical component providers and parts providers for AI infrastructure only on the next three to five years' worth of profit.

So in this scenario, it's not like there's no upside left for Micron. At the midpoint of this scenario, fair value is still $1,700 per share.

But in the little table there in the bottom right, there are some exit multiples and net profit margin scenarios where the stock could be valued much lower than that, or conversely, much higher than $1,700 per share.

But the idea is this helps illustrate why the market is allowing Micron to go for such a seemingly cheap earnings multiple, even though it's pretty clear that the company is going to be making a massive amount of money over the next few years.

Because we don't know what is going to happen beyond 2028, 2029, there are too many probabilities, and too many of those probabilities are revenue comes to a grinding halt, profit margins start coming down rapidly.

There are too many possible outcomes like that to value that profit yet. And so the market is compressing the next two to three years, and that's where you get these seemingly cheap multiples and while it just doesn't make a whole lot of sense, that is the reason why this is happening. So, it doesn't mean Micron isn't cheap.

It very well could be, especially if they continue to surprise to the upside on what they're able to generate in profitability. And even more importantly than that, now that they have all of that cash on hand, what they decide to do with that cash to evolve their business and prepare for inevitable cyclicality that always hits manufacturing companies.

Micron and the other memory companies could continue generating profit well in excess of what they ever have in the past. That's why we allocated to them, and that's why we have continued staying allocated to them.

Even as we're approaching twenty twenty-seven, we're happy to continue holding.