Why Micron Stock Rallied on Thursday
Key Points
As Micron nears the anniversary of its CHIPS Act subsidy, the company is making plans.
Micron is planning to significantly increase its capital returns to shareholders.
The stock is still attractively priced.
Shares of Micron Technology (NASDAQ: MU) charged sharply higher on Thursday, jumping as much as 7.3%. As of 2:04 p.m. ET, the stock was still up 6.6%.
The catalyst that sent the semiconductor specialist higher was media reports detailing the company's upcoming capital allocation plans.
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Show me the money
In late 2024, Micron received a $6.1 billion chip-making subsidy from the U.S. Department of Commerce to produce semiconductors in the U.S. The agreement, formally known as the CHIPS Incentive Program, rewarded companies that agreed to increase manufacturing in the U.S. One of the stipulations was that none of the funds could be used for share repurchases, and recipients agreed to refrain from stock buybacks for a period of time after receiving the subsidy.
In the fiscal 2026 Q3 earnings call with analysts in June, CFO Mark Murphy revealed that Micron was sitting on what it called "excess cash." He addressed the issue of returning capital to shareholders, saying, "Over time, we expect to return 100% of our excess cash to shareholders."
He went further, noting, "the principal capital return we have will be share repurchase. I said today in the prepared remarks that we intend to increase our capital return from Dec. 9, which is the second anniversary of our CHIPS agreement signature." He pointed to the company's record cash flow, noting that in the past two quarters, Micron had "generated as much as [in] much of the company's history."
Several press reports have surfaced, recounting that interaction, and the prospect of a robust capital return program has investors cheering.
Even after today's rally, Micron stock is selling for just 22 times earnings, an attractive multiple for a company growing revenue and profits at triple-digit rates. Bears will argue that chip stocks are cyclical and that the current cycle will eventually end. However, as I've detailed before, Micron has taken steps to lock many of its major customers into multi-year, non-cancelable contracts to ensure its windfall continues.
As such, I would argue that Micron stock is still a buy.
Danny Vena, CPA has positions in Micron Technology. The Motley Fool has positions in and recommends Micron Technology. The Motley Fool has a disclosure policy.