Tracking and understanding what the government subsidizes can be a great source of finding investment ideas.

The CHIPS Act, designed to strengthen U.S. semiconductor manufacturing, has become a great example of the government subsidizing industries.

The government is determined to reduce reliance on foreign semiconductor production and improve critical supply chains.

As AI models become more sophisticated and capable, their hunger for data and computational power grows exponentially.

This has fueled a wave of investment in AI infrastructure, especially in data centers that serve as the backbone for AI processing.

Data centers are complex facilities packed with high-performance equipment like servers, cooling systems, and networking gear, all of which are essential to keep the vast flows of data moving smoothly.

One often overlooked but crucial component in this setup is memory chips. These small yet vital pieces of technology play a significant role in ensuring that data can be accessed and processed quickly.

Micron Technology (MU) has established itself as a key player in the memory chip market, supplying key components like DRAM and NAND that are essential for data centers, consumer electronics, and other tech applications.

Recently, the U.S. Department of Commerce finalized $6.165 billion in funding for the company to support the construction of three semiconductor fabrication plants.

Two of these facilities will be in Clay, New York, and one in Boise, Idaho. These projects are part of Micron’s $125 billion investment plan over the next two decades.

Funds will be distributed as Micron achieves specific project milestones, ensuring accountability and progress.

The investment is expected to significantly increase the U.S. share of advanced memory manufacturing, targeting growth from near zero to 10% over the next decade.

Micron has also secured a preliminary agreement for a $275 million investment to modernize its Virginia facility, focusing on critical technologies for defense, automotive, and national security applications.

This project is expected to cost $2 billion in total capital expenditure over the next several years.

Despite these transformative investments, the market has been slow to fully recognize Micron’s potential.

We can also see this through our Embedded Expectations Analysis (“EEA”) framework.

The EEA starts by looking at a company’s current stock price. From there, we can calculate what the market expects from the company’s future cash flows. We then compare that with our own cash-flow projections.

In short, it tells us how well a company has to perform in the future to be worth what the market is paying for it today.

While analysts believe Uniform return on assets “ROA’’ will surge in the next two years, the market’s ROA expectations are still low.

The market has yet to fully price in the company’s growth potential and its investments offer a clear path to long-term success.

For investors, Micron’s leadership in domestic manufacturing and strong government support make it an attractive opportunity in a crucial sector.

Best regards,

Joel Litman & Rob Spivey
Chief Investment Officer &
Director of Research
at Valens Research

This portfolio analysis highlights the same insights we share with our FA Alpha Members. To find out more, visit our website.