Motley Fool: Investors could bet on good memory

At first glance, Micron Technology (Nasdaq: MU) might not look like a slam-dunk buy.

The designer and maker of computer memory chips is not profitable on a trailing-12-month basis.

That’s also true for Micron’s free cash flow, which has been negative over the last four quarters. Trailing sales are down 34% from the all-time highs seen in the summer of 2022. Investors don’t seem thrilled about these financials, either; Micron’s stock price was recently down 41% from its all-time high reached in June.

But there’s reason to be optimistic about Micron, because it’s tapped into the opportunities in artificial intelligence (AI). Computer systems built for training advanced AI software require lots of memory; so do the systems that deliver business-friendly (or business-ready) AI services when the training is done.

And do you know what your smartphone needs if you want it to deliver AI services without a cloud computing hub? That’s right – plenty of memory!

The latest wave of AI-enabled flagship phones is expected to inspire a large number of upgrades from older, AI-less handsets. The combination of more phone sales and more memory per phone should give Micron a massive revenue boost – and that’s just the smartphone piece of the AI puzzle.

If you’re bullish on the spread of AI, consider grabbing a few shares of this high-quality semiconductor stock on the cheap.

Ask the Fool

Q: I see that Exxon Mobil has a total market value near $500 billion. Is that too high? – A.C., Westwood, New Jersey

A: Not necessarily. A stock’s value reflects what investors are willing to pay for it, based on how it’s performing and on expectations for its future growth. That market cap (recently $494 billion) is a steep sum, but that doesn’t necessarily mean its shares (recently priced near $111) are overvalued.

With ExxonMobil, you might check out a few numbers to get an idea of its valuation.

Its price-to-earnings (P/E) ratio, for example, was recently 13.3, a bit above its five-year average of 12.6.

Its forward-looking P/E ratio, based on expected future earnings instead of past earnings, was recently 11.7, below its five-year average of 12.8. Never depend on just a few measures, but these two do suggest that the stock is close to being fairly valued.

If you’re looking at its peers and see that Chevron’s market value was recently $255 billion, that doesn’t mean Chevron is cheap or Exxon Mobil is overvalued.

Note, for example, that Exxon Mobil’s total revenue for the past 12 months was recently $341 billion, while Chevron’s was $197 billion. Companies with higher revenue and earnings tend to sport higher valuations.

Q: What’s an underwater mortgage? – F.B., Chesterfield, Missouri

A: It’s something you should hope to avoid if you’re a homeowner. It means that you’ve bought a home with a mortgage, and the value of your home drops so much that you now owe more than the property is worth. (It’s also referred to as negative equity.)

If you don’t need to sell the home any time soon, the situation might right itself over time.

My Smartest Investment

My smartest investment move was deciding to do nothing. In other words, I employed a lot of patience. – C.D., online

The Fool responds: Doing nothing is a great way to build wealth, and you are indeed smart for figuring that out.

Superinvestor Warren Buffett has extolled the virtues of doing nothing for many years. In his 1988 letter to shareholders, for example, he explained that though many investors do a lot of buying and selling of stocks, “when we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.”

In his 1998 shareholder letter, he expressed regret for selling his shares of McDonald’s, noting: “Overall, you would have been better off last year if I had regularly snuck off to the movies during market hours.”

He has also quipped: “The trick is, when there is nothing to do, do nothing.”

Of course, you first need to buy shares of great and growing companies – ideally when they’re undervalued. Or just invest in a low-fee S&P 500 index fund. After that, the best thing to do is often nothing.