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When you hear about self-driving cars, what comes to mind?

Probably Tesla or Waymo. They’re the most popular self-driving car companies, for sure.

But there are other ways to play the autonomous-driving trend.

You see, it’s not just about the car itself. It’s also about what’s inside. Specifically, the tech that automates the vehicles. 

That’s why financial pros have been digging into memory and storage companies as they look for businesses poised to profit off not just AI driving, but also IoT and mobile devices. 

The company they’ve searched most over the last month is Micron (MU), and for very good reason. 

It developed memory bandwidth set to fuel future AI computing engines. 

But does that make the stock a buy? 

With shares down more than 40%, we take a deep dive to answer that question.  

Micron’s Business

Micron is the global leader in memory and storage solutions. 

The firm has been in the semiconductor space for over 40 years. 

It’s brought several innovative products to market. In 2021, it delivered the industry’s first 1α DRAM technology. This year, it shipped the world’s first 232-layer NAND. 

As a quick primer, DRAM stands for dynamic random-access memory, which we use for temporary storage and access in computers. It’s volatile memory, so once we remove power, the information is gone.

NAND is a non-volatile memory that saves data when we remove power.

Sounds like NAND would be better, but DRAM is 100x faster and lasts 1,000x longer.

DRAM and NAND are Micron’s two primary products.

Revenues for the business break down by product as follows:

The company operates in five market segments: mobile; client and graphics; enterprise and cloud server; SSDs and other storage; and automotive, industrial, and consumer.

Mobile is an especially exciting category, as the company is heavily invested in 5G technology.

Additionally, Micron announced it planned to expand its manufacturing footprint in the U.S. with $15 billion for a DRAM fabrication site in Boise, Idaho. It plans to add another elsewhere in the U.S.

Currently, Micron is leveraging its relationships with its automotive partners, including Ford, General Motors, and their semiconductor suppliers, to help innovate and develop computer and autonomous-driving solutions.

While still in its infancy, the technology has the potential to add a whole other revenue facet to Micron.

Financials

MU has more than doubled its revenues from 2016 to 2022, going from $12.3 billion to $30.7 billion as its technology becomes a greater part of our lives, from mobile to business data centers. Moreover, the firm has delivered six consecutive years of positive cash flow. 

Additionally, MU is in excellent financial shape. It has $9.3 billion in total cash and $7.5 billion in total debt. And unlike many of its competitors, it pays investors an annual dividend. 

The company has a more-than-healthy current ratio of 2.8x.

Valuation

MU trades at a P/E GAAP ratio of 7.2x, notably lower than its five-year average of 13.6x. 

Plus, it’s relatively cheaper than its competitors. For example, Analog Devices (ADI) trades at a P/E GAAP ratio of 39.5x, NXP Semiconductors (NXPI) 15.8x, and Microchip Technology (MCHP) 22.9x. Marvell Technology (MRVL) isn’t profitable enough to have a P/E GAAP ratio. 

MU has a price-to-sales ratio of 2x, significantly lower than its five-year average of 2.5x and notably lower than its competitors’ price-to-sales ratios. 

ADI is at 6.6x, NXPI is at 3.1x, MRVL is at 5.8x, and MCHP is at 4.7x. 

Profitability

MU’s gross profit margin of 45% isn’t as strong as its competitors’. ADI’s is 64%, NXPI’s is 56%, MRVL’s is 51%, and MCHP’s is 65%.

However, MU has a significantly higher net income margin at 28.2%. Its closest competitor is MCHP at 21.3%.

Additionally, Micron has a superior EBITDA margin of 54.7%. ADI is at 48.7%, NXPI 36.8%, MRVL 30.6%, and MCHP 45.9%. 

Growth

Micron had a record year of revenues, growing 11% YoY. While that’s impressive, its competitors grew their revenues more. 

In fact, ADI grew revenues by 70.7%, NXPI by 24.2%, MRVL by 59.6%, and MCHP by 26.6%. But much of that came from a backlog of orders that fell through in the last 12 months.

MU had EBITDA growth of 29.3%. This wasn’t as strong as its competitors’. ADI’s was 89.9%, NXPI’s 23.4%, MRVL’s 111.7%, and MCHP’s 44.5%. 

Our Opinion 8/10

Micron is the fourth-largest semiconductor company in the world. 

Despite record revenue in 2022, shares are down by more than 40%. 

The company is in several exciting growth sectors, particularly AI, 5G, and autonomous driving. 

Moreover, the firm has a 40-year track record in the space. 

We believe picking up shares between $50 and $55 should pay off in the next couple of years.

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