The $1 Trillion Club Gets a Little More Crowded
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What does Micron's rise to the $1 trillion club signify?
We have a new member of the $1 trillion club. Motley Fool Hidden Gems Investing starts now. Welcome to Motley Fool Hidden Gems Investing. I'm Travis Holm. I'm joined today by Lou Whiteman and Rachel Warren. Guys, we have a new member of the trillion dollar club. I believe there's now 14 companies that are worth over a trillion dollars. This used to be a really big number and now it seems like we get a new company every week. But Lou, the company that we're talking about is Micron, past a trillion dollars. I thought it was interesting to look back at their financials. Five quarters ago, they were free cash flow negative. Now they are the hottest stock on the market. This is a cyclical industry, typically a cyclical industry, but this is now also one of the most valuable companies in the world.
Is this time around different for Micron?
Maybe, but let's pause for a second and look at like kind of what they've done. This was a $350 billion company on January 1st. Guys, it's still May. They've had a heck of a career in a couple of months, right? Gained 19% yesterday, basically on an analyst price target move. These are not normal times. That said, there is a there there. These AI models need memory. Micron has done a decent job shifting its business just away from this brutal commodity cycle and towards a higher value product. So they are, I think, special among memory. The note in question, the note that triggered this move over a trillion dollars, that analyst sees long-term contracts in place through 2029. If that's correct, and I do think they're directionally correct anyway, this is not a fluke.
This is not a one-time thing. This is the market responding to real demand. And with AI, just the numbers are all huge, but the demand is huge.
Yeah, Rachel, it does seem like this time is a little bit different. They are in maybe a little bit higher value segment of the market, but there's also more players coming into the market at the end of the day. Memory is the kind of thing where supply and demand ultimately matters, but free cash flow does too. And it seems like they're going to have a really good year.
Yeah, absolutely. I mean, it's kind of interesting to take a step back, right? Because historically, memory was sort of this unglamorous, sort of brutal corner of tech. So companies like Micron, they made standard DRAM for PCs and smartphones. And so, you know, demand would dip, inventory piles up, prices crash. It was a really pure commodity cycle. And there has been a lot that's changed over the last few years. And a lot of that goes back to high bandwidth memory. So modern AI accelerators, you think of NVIDIA's Blackwell chips, for example. They can't function without massive amounts of premium ultra-fast memory stacked directly next to the processor. And Micron has pivoted from selling what was essentially, in comparison, a cheap commodity to selling this very high margin, highly customized strategic asset.
We're really seeing the physical reality of chip manufacturing is creating a massive bottleneck as well. And that actually benefits Micron, right? They've sold out their entire high bandwidth memory chip supply for all of 2026 under fixed long term contracts. The CEO is saying that they can only fulfill about 50 percent to 67 percent. of current customer demand.
How has Micron shifted its business model in response to market demands?
And because building these semiconductor fabs takes years, right? So new supply from their domestic expansions won't even hit the market until 2028. So that is creating tremendous tailwinds for the business. And I think we're seeing a lot of that enthusiasm bear out, certainly in that analyst note, and of course, in the broader markets response.
Lou, I want to just touch on their valuation too. This is one of those companies that you look at the stock at a very low price to earnings multiple, especially on a forward basis. It has been even in the low single digits, not just single digits, but four or five as recently as a few weeks ago. I think we're a little bit over that now. But... Historically, we're trying to give a little bit of historical context here.
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