Paul Tudor Jones is a billionaire investor, probably most famous for shorting the market before the 1987 stock market crash. In recent years, he traded more conservatively, but he remains an active investor.
In his 13-F for the first quarter of 2024, Jones's Tudor Investment Corp. revealed it had opened a position in memory chipmaker Micron Technology (MU -0.25%). Over most of its history, Micron has become better known for its volatility but has begun to gain traction in recent years. The question for active investors is whether they should follow Jones into this stock.
The state of Micron
Micron is likely a "once in a generation" bet because it took about a generation to return to record highs. The memory chip business is the most volatile part of the semiconductor industry. After posting gains in the 2000 dot-com bubble, Micron technology stock struggled as down cycles in the semiconductor industry wiped out all stock market gains in that industry between the mid-1990s and mid-2010s.
However, the factor likely driving Jones and other investors into Micron stock is the rise of artificial intelligence (AI). Thanks to AI, Micron benefits from a long-awaited increase in the secular demand for memory chips. It supercharged this demand by partnering with Nvidia and producing a high-bandwidth memory (HBM) semiconductor that will support Nvidia's next-generation H200 GPUs.
Jones' investment began in the first quarter of this year, likely around the time Micron and Nvidia made that announcement. Amid this agreement, Micron has surged higher by approximately 75% since the beginning of this year, taking its stock to all-time highs.
Effects on the financials
Production has just begun on the HBM chip, so it is too early to see the effects. However, revenue for the first two quarters of fiscal 2024 (ended Feb. 29) was just under $11 billion, a 36% increase compared with the same period last year.
Over that time, Micron limited the rise in cost of goods sold and cut operating expenses. This led to a $441 million loss in the first six months of fiscal 2024, up from the $2.5 billion net loss in the same year-ago period. Additionally, Micron reported a profit of $793 million in fiscal Q2, so its financials seem to have improved without the recent Nvidia deal.
Moreover, Micron projects revenue of $6.6 billion at the midpoint in Q3 of fiscal 2024. Since it only reported $3.75 billion in revenue in Q3 of fiscal 2023, Micron is probably on track to sustain its recovery.
Nonetheless, amid the increasing stock price, Micron's rising valuation should give investors pause. The price-to-sales (P/S) ratio increased to 9. While that is not high for other types of semiconductor stocks, investors should keep in mind that this is Micron's highest sales multiple in over 20 years. For the first two months of this year, the P/S ratio was under 6, indicating that Micron has become an expensive stock.
Should investors follow Jones into Micron?
Given the stock's history, shareholders should buy cautiously if they choose to invest at all. Admittedly, Nvidia and AI have put Micron stock into a secular bull market, and with revenue projected to keep rising, even the most bearish investors should not expect it to return to multiyear lows.
However, the stock is at a record high, and a change in investor sentiment will probably bring about a considerable decline at some point. Thus, investors should not consider any aggressive moves into Micron until the stock falls back into a bear market.
