Micron Technology (NASDAQ: MU) is ripping higher on Tuesday morning, even though Envision Research issued a dovish note on the DRAM and NAND memory specialist.
The upward momentum on May 5 has pushed MU’s relative strength index (14-day) into the early 80s, indicating extremely “overbought” conditions that often precede a pullback.
Micron stock has been a lucrative investment in recent weeks, now trading at about twice its price at the start of April.
Micron stock is trading at a stretch EV/sales multiple
Envision’s dovish stance is rooted in a significant divergence between MU shares’ enterprise value to sales (EV/sales) multiple and the historical average.
While investors are fixated on a low forward price-to-earnings (P/E) ratio, the firm’s top researcher, Lucas Ma, argues the EV/sales metric has reached “very elevated” levels compared to the broader semiconductor sector.
What this simply means is: Micron is being priced for perfection; while the company is profitable, the market may be overvaluing every dollar of revenue it generates.
This leaves little to no margin for error should the growth rates begin to decelerate, Ma told clients in his research report today.
Why else is Envision dovish on MU shares
The second pillar of Envision’s caution rests on the inherent cyclicality of the memory industry, which often defies the long-term bullish structural narratives.
For the past year, the prevailing Wall Street sentiment projected a structural supply deficit lasting through 2027, fueled by High-Bandwidth Memory (HBM) demand.
However, Ma’s latest findings signal that supply-demand dynamics are shifting faster than anticipated.
As competitors ramp up capacity and memory prices begin to flatten, the “Strong Buy” consensus on Micron shares faces a reality check.
In his research note, the Envision analyst also noted that a rapid increase in sentiment often precedes a sharp correction; once the memory cycle peaks, the transition from scarcity to surplus can happen with brutal speed – catching over-leveraged institutional investors off guard.
Cramer disagrees with Lucas Ma on Micron Technology
On the flip side, famed investor Jim Cramer offered a stark rebuttal to the “peak” narrative.
In a segment of CNBC today, the former hedge fund manager said MU stock has transcended its cyclical history to enter a phase of “secular growth.”
According to him, the memory market is experiencing a “generational opportunity” driven by an insatiable demand for artificial intelligence (AI) hardware.
Despite Envision’s report, Cramer maintained that only limited new capacity is entering the market – and CEO Sanjay Mehrotra is executing flawlessly to capitalize on that supply-demand dynamic.
At roughly 6.5x earnings, Micron Technology Inc remains fundamentally undervalued, he noted, adding the firm’s multiple could easily double from here.
All in all, the former hedge fund manager dubbed pullbacks as rare buying opportunities for long-term investors, given MU – he believes – is “galloping” toward much higher valuations.
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