Micron is taking in more cash than Apple and Nvidia. It'll soon start doling that money out to shareholders in the form of stock buybacks.
Few companies are generating as much cash as Micron.
Micron Technology is seeing a historic cash windfall - and much of that money will soon rain down on investors.
As memory-chip demand has ballooned, the company has seen a dramatic increase in its free cash flow, a measure of the amount of money a company has left over after covering the costs of its operations and equipment.
In the latest quarter, Micron (MU) ranked third in the S&P 500 SPX by this metric - above Apple (AAPL) and Nvidia (NVDA), and below only JPMorgan Chase (JPM) and Goldman Sachs Group (GS). The company reported $33.2 billion in adjusted free cash flow for the August quarter, more than the combined $29.1 billion from its previous three quarters.
Micron's performance is notable because just three quarters ago, it didn't even rank in the top 30 among S&P 500 components, according to Dow Jones Market Data.
And for investors, Micron's ability to churn out so much cash is intriguing because of what the company soon plans to do with it. As a recipient of the Biden-era Chips and Science Act, Micron has been restricted from buying back its stock - but those limitations expire in December.
Micron has said it plans to return to shareholders all of its excess cash - meaning that which isn't needed for operational and related purposes - and that it will primarily do so through share repurchases. Investors will "want to own" Micron stock when those "aggressive buybacks" kick off, Cantor Fitzgerald analyst C.J. Muse said in a recent note to clients.
Morgan Stanley analyst Joseph Moore seemed to agree, writing recently that the eventual authorization of fresh buybacks could serve as a catalyst for the stock.
Cantor Fitzgerald's Muse is modeling for Micron to generate about $150 billion in free cash flow next year, and about $182 billion in 2028. Overall, he sees the company's free cash flow reaching more than $333 billion over the next eight quarters, which he said would amount to about 30% of its total outstanding shares.
When companies buy back stock, they reduce the number of shares outstanding; that, in turn, helps boost earnings per share. But whether high-profile technology companies should devote so much of their extra cash to stock buybacks tends to be a topic of heated debate on Wall Street, and that's true in Micron's case as well.
As Micron is in a hypergrowth phase, "it's optimal to reinvest money in the business," whether that be in production or research and development, said Andrew Rocco, a stock strategist at Zacks Investment Research.
Micron has announced investments into additional clean-room space for manufacturing chips to meet demand, and executives have said on earnings calls that most of the new production and output is expected in 2028.
Still, Rocco said Micron's current growth levels won't be sustainable in the long term. The company should "take advantage of this rare moment in time when everything is lining up for them - and later down the road, when growth slows, look into buybacks," Rocco told MarketWatch.
Rocco noted Nvidia's recent buyback authorization of $150 billion, the largest in U.S. corporate history. In his view, however, a share-repurchase program of that size makes sense for Nvidia given its current $5.6 trillion market capitalization.
-Britney Nguyen