Micron technology (NASDAQ: MU) The stock fell in the two days that followed after it announced its fourth quarter and full year 2021 results. The memory chip maker beat estimates, but concerns about capital expenditures and rising supply led investors to sell stocks. Although Micron may continue to benefit from the current chip scarcity and remain a leading memory chip company for the longer term, investors are wondering whether this success will be profitable for them Chip warehouse.
How Micron did
In the fourth quarter of 2021, sales rose 36% to nearly $ 8.3 billion. Net income rose 175% to over $ 2.7 billion during that period as the company capped operating expense growth to just 5% during that time. Revenue for full year 2021 of $ 28 billion increased 29% compared to 2020. That solid top-line growth allowed net income to grow 116% to $ 5.9 billion over the period as the increase in operating costs remained minimal throughout the year.
While Micron does not forecast beyond the first quarter of 2022, the company expects sales between $ 7.45 billion and $ 7.85 billion. Reaching the middle of this range would represent a 33% increase over the previous year.
However, both this forecast and the report on the previous quarters indicate critical concern. The fact that the company is only forecasting a quarter ahead could suggest that the company may struggle to hit the numbers beyond the first quarter.
Why the numbers should concern investors
That concern points to steps taken by Micron and its competitors that should eventually end the chip shortage. Amid the current deficit, chipmakers around the world, including Micron, have begun to expand their capacities. As a result, Micron expects to spend between $ 11 billion and $ 12 billion on investments in research and production growth in fiscal 2022, well above the $ 9.7 billion in 2021.
Additionally, one of its biggest competitors, Samsung, has pledged to spend $ 146 billion on product development and foundry expansion over the next three years, according to SDxCentral.
While Micron and its competitors are unlikely to have trouble selling more memory chips, the expansion of manufacturing capacity underscores the negative impact on shareholders since Micron supply cools down. Micron’s stock price is more dependent on chip price than a semiconductor stock like Nvidia or Intel.
Due to the increased demand for chips made from artificial intelligence, virtual reality and the Internet of Things, the decline in the price of 2018 did not have as much impact on Micron stock. Instead of falling below $ 10 per share as in previous price cycles, the 2018 low was around $ 28 per share. However, that was a 56% decrease from its 2018 high of around $ 65 per share. A corresponding drop from its 2021 high of $ 97 per share would bring Micron to about $ 43 per share, which is well below the price of $ 70 per share at the time of this writing. The sharp fluctuations in memory prices over time make Micron a deep one cyclical stock.
Should Investors Consider Micron?
Micron stock has thrived amid the memory chip shortage that emerged during the COVID-19 pandemic. However, as companies across the chip industry increase their capacities, supply is likely to increase, which will lead to chip prices falling. Micron stock history suggests significant sales when such a phenomenon occurs. So, while Micron should remain a leader in memory chips, investors may have to prepare for more short-term declines and lower long-term profits.
This article represents the opinion of the author who may disagree with the “official” referral position of a premium advisory service from the Motley Fool. We are colorful! Questioning an investment thesis – even one of our own – helps us all think critically about investing and make decisions that will help us get smarter, happier, and richer.