We recently compiled a list of the 7 Best Cheap Technology Stocks To Buy According to Hedge Funds. In this article, we are going to take a look at where Micron Technology Inc. (NASDAQ:MU) stands against the other cheap technology stocks.
Another Surge in Tech Stocks
Recent analysis indicates a reset in tech stocks as the Fed has not adjusted rates quickly enough for investors. However, following this week’s rate cut, there is a renewed connection between tech stocks and market sentiment. A 50 basis point reduction can ease borrowing and spending, potentially leading to increased mergers and acquisitions activity, and heightened investments in technology, particularly AI.
Lower interest rates are expected to accelerate the shift towards AI computing by making capital more accessible. As rates decrease, expected returns on investments become more attractive, fostering greater confidence among companies to invest in AI. There is actually a relationship between how tech stocks are driving utility stocks now due to a global increase power demand thanks to electrification and AI. Michael Khouw, OpenInterest.PRO Chief Strategist, talked about this in detail earlier this week. Here’s an excerpt from the 10 Worst AI Stocks to Buy According to Reddit article that covered him:
“Khouw discussed the current state of utilities and acknowledged that while it may seem daunting to invest in a sector that has seen substantial gains, over 7.5% total return since the beginning of last year, it is still an opportune time to consider utilities as an investment. Historically, utilities have not been perceived as a growth sector, but Khouw emphasized that they are currently trading at about 19 times forward earnings, which is relatively high compared to their usual discount to the market…. He predicts that a new phase of growth in electricity demand is on the horizon, driven primarily by two factors: the rise of electric vehicles (EVs) and the increasing need for data centers fueled by artificial intelligence (AI)…. This landscape indicates a promising rise in AI stocks, driven by the increasing recognition of AI’s transformative potential across various sectors. As electricity demand surges, fueled by the rise of EVs and the expansion of data centers necessary for AI operations, investors are likely to see significant growth opportunities in AI stocks as well.”
In recent market updates, the NASDAQ Composite emerged as the best-performing major index, despite not reaching any record highs, unlike the Dow Jones and S&P 500. The NASDAQ’s resilience can largely be attributed to a rally in chip stocks, with notable contributions from big tech companies, which have been instrumental in helping recover some of its declines. The Fed’s recent interest rate cut has sparked renewed enthusiasm in the semiconductor sector, leading to significant gains for exchange-traded funds (ETFs) focused on this industry.
On September 20, CNBC’s Seema Mody reported that the VanEck Semiconductor ETF was surging post the Fed’s rate cut, driven by positive sentiment surrounding chip manufacturers. Notably, British semiconductor giant Arm has gotten attention following a meeting with management from a major financial institution, where analysts expressed confidence that the designer could achieve 20% revenue growth over the next few years. This anticipated growth is largely attributed to the increasing demand for CPUs driven by AI workloads in data centers.
Meanwhile, Nvidia saw an uptick of about 5%, marking a 10% rebound over the past couple of weeks. This resurgence coincided with CEO Jensen Huang’s active media presence, promoting the potential of accelerated computing at various conferences, including a recent event with Salesforce’s CEO Marc Benioff.
Additionally, Intel clarified that it would not sell its stake in Mobileye, which provided relief for the shares of that subsidiary, contributing to a notable 17% increase on that day. The semiconductor industry is currently awaiting earnings reports from Micron and Taiwan Semi, which could further influence market dynamics.
The combination of favorable economic conditions spurred by the Fed’s rate cut and optimistic outlooks from industry leaders has rekindled interest in semiconductor stocks. Investors are closely monitoring developments within this sector as companies position themselves to meet the growing demand of businesses and consumers for AI-powered products and services. As the outlook remains bullish for tech stocks, we’re here with a list of the 7 best cheap technology stocks to buy according to hedge funds.
Methodology
We sifted through ETFs, online rankings, and internet lists to compile a list of 20 tech stocks with a forward P/E ratio under 20. We then selected the 7 cheapest stocks that were the most popular among elite hedge funds and that analysts were bullish on. The stocks are ranked in ascending order of the number of hedge funds that have stakes in them, as of Q2 2024.
Note: The data is sourced as of September 20, 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A close-up view of a computer motherboard with integrated semiconductor chips.
Micron Technology Inc. (NASDAQ:MU)
Forward Price-to-Earnings Ratio: 10.56
Number of Hedge Fund Holders: 120
Micron Technology Inc. (NASDAQ:MU) is a producer of computer memory and computer data storage including dynamic random-access memory, flash memory, and USB flash drives, for a wide range of electronic devices, including smartphones, computers, servers, and data centers. Many hyperscalers rely on it for memory products, including Apple.
In the FQ3 2024, the company’s revenue increased by a record 81.53% year-over-year, primarily driven by robust AI demand. The demand for its DRAM and NAND flash memory is rising, largely due to growth in data centers, AI, and automotive technology. DRAM revenue represented 69% of total revenue, up 13% sequentially. Data center revenue alone rose over 50% sequentially, while NAND flash products revenue increased by 32%.
Compute and Networking Business Unit revenue improved 18% sequentially. Embedded Business Unit revenue was up 16% driven by record revenue in automotive, and the revenue for the Storage Business Unit increased by 50% quarter-over-quarter. All these improvements were offset just very slightly by the 1% sequential decline in the Mobile Business Unit.
Despite the strong performance in FQ3 2024, it’s facing challenges due to an inventory glut from last year. The company is heavily investing in high bandwidth memory production, which is expected to generate billions in sales by fiscal 2025 compared to just hundreds of millions in 2024.
The company’s current challenges are due to its substantial investments in expanding manufacturing capacity. In FQ3, the company invested $2.06 billion. However, these investments are expected to drive future growth, especially with support from the US government. Strong AI demand positions it to benefit from rebounding memory prices and favorable inventory balances.
ClearBridge Value Equity Strategy stated the following regarding Micron Technology, Inc. (NASDAQ:MU) in its Q2 2024 investor letter:
“Stock selection in the IT sector proved to be the largest contributor to performance, particularly driven by the strong performance of Micron Technology, Inc. (NASDAQ:MU) The company, which designs, develops, manufactures and sells memory and storage products, continued its strong performance alongside other AI beneficiaries as the anticipated demand for new and additional storage essential for housing and training large language AI models continues to grow.”
Overall MU ranks 1st on our list of the best cheap technology stocks to buy according to hedge funds. While we acknowledge the potential of MU as an investment, our conviction lies in the belief that AI stocks hold great promise for delivering high returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than MU but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.