The artificial intelligence (AI) market has exploded over the past year, and among the businesses benefiting from this growth is Micron Technology (NASDAQ: MU). The company's sales are soaring because AI systems require lots of computer memory and storage, exactly the products Micron specializes in.

This led to an amazing run-up in the company's share price. Last July, Micron stock was at a 52-week low of $60.50. Fast-forward a year, and shares more than doubled to hit a high of $157.54 in June.

But after announcing results for its fiscal third quarter, ended May 30, Micron's stock price plunged. Does this create an opening to buy shares, or does the price drop suggest a reason to avoid investing in Micron?

Here's a look into the company's performance to answer those questions and determine if Micron is a worthwhile investment over the long run.

Micron's financial performance

Micron's post-earnings share price decline was due to its fiscal Q4 financial forecast failing to impress Wall Street. The company estimated Q4 revenue to come in around $7.6 billion, which is a 90% increase over the prior year's $4 billion.

To put this guidance into context, here's how Micron's revenue has fared over its fiscal 2024.

Data source: Micron Technology. YOY = year-over-year.

As you can see, Micron's revenue has been growing every quarter this fiscal year, thanks to the customer demand generated by the advent of AI. And looking deeper at Micron's fiscal Q3, performance was solid across multiple financial metrics.

The company's Q3 free cash flow (FCF) of $425 million is a substantial reversal from last year's negative FCF of $1.4 billion.

In addition, Micron exited Q3 with a healthy balance sheet. Total assets were $66.3 billion with $7.6 billion in cash and equivalents. Total liabilities were $22 billion.

Micron's current demand environment

Overall, Micron had a good third quarter, and its streak of rising revenue looks poised to continue because of the growing AI market. The AI industry is forecasted to expand from 2023's $136 billion to $827 billion by 2030.

Micron is capturing its share of this market. In fact, Micron management stated its high-bandwidth memory chips, needed for AI to process data and make complex calculations, are already sold out for this year and 2025 as well.

Given the robust demand environment, Micron raised prices. As a result, the company's gross margin has grown, increasing from 19% in fiscal Q2 to 27% in Q3. Micron expects its gross margin to go up yet again in Q4 to around 34%.

Demand for its products coupled with the AI market's rapid growth led CFO Mark Murphy to state Micron expects "record revenue and significantly better profitability in fiscal 2025."

To buy or not to buy Micron stock

Micron is on a roll right now. But in evaluating it as a long-term investment, it's important to note Micron operates in a cyclical industry. This means while AI provides a boost today, at some point, the company will eventually face an industry downturn.

For example, in Q2 of its 2023 fiscal year, revenue dropped over 50% to $3.7 billion from the previous year's $7.8 billion. At the time, CEO Sanjay Mehrotra explained this by saying, "The semiconductor memory and storage industry is facing its worst downturn in the last 13 years."

Now, the company's fortunes have reversed, and with the AI market in the early years of expansion, Micron is well positioned to continue growing revenue.

That growth led Mehrotra to declare that "Micron will be one of the biggest beneficiaries in the semiconductor industry of the multiyear growth opportunity driven by AI."

Despite Wall Street's disappointment with Micron's Q4 guidance, the current consensus among Wall Street analysts is a buy rating with a median share price of $165 for Micron stock. This suggests a belief the share price will go up.

Given AI's multiyear tailwind to Micron's sales growth, and with shares down after its recent earnings report, now is a good time to buy Micron stock and hold it over the long term as the AI market expands.

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Robert Izquierdo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Is Now the Time to Buy Micron Technology Stock? was originally published by The Motley Fool