Why this is one of the best tech stocks to buy now
Any doubt about Micronic technology (NASDAQ: MU) the stock’s ability to generate the formidable upside potential Wall Street expects it to generate in the coming year has been halted after its fiscal 2021 third quarter earnings report .
The memory specialist generously squashed analysts’ expectations, issued strong indications and stressed that the memory market will continue to remain healthy thanks to robust demand. In short, Micron has hinted that its formidable growing days are here to stay. Let’s take a look at why this may be the case, and why you should buy the stock if you haven’t already.
Micron Technology once again shows exceptional growth
Micron Technology’s third-quarter revenue grew 36.5 percent year-on-year to $ 7.4 billion, well above the company’s initial forecast upper limit of $ 7.3 billion. dollars. The chipmaker’s non-GAAP earnings jumped to $ 1.88 per share from the $ 0.82 figure in the prior year period, which was well above the midpoint of its initial forecast of $ 1.62 per share.
Wall Street expected Micron to generate $ 1.72 per share in profit on $ 7.23 billion in revenue, but a combination of high memory demand and price tag helped it erase those estimates. For example, Micron’s dynamic random access memory (DRAM) revenue grew 23% quarter over quarter and 52% year over year. The segment produced 73% of Micron’s total revenue and benefited from a 20% quarter-over-quarter jump in Average Selling Price (ASP) and a single-digit increase in shipments of bits.
The NAND flash business which accounted for 24% of Micron’s total revenue also recorded robust growth. Segment revenue increased 10% quarter over quarter and 9% year over year, due to a single-digit percentage increase in ASP and ‘a single-digit percentage increase in bit shipments. Improving prices also gave Micron a big boost to gross margin. Its adjusted gross margin fell from 33.2% in the previous year’s quarter to 42.9% in the third quarter.
Micron’s forecast for the fourth quarter is also impressive. The company is forecasting revenue of $ 8.2 billion in the middle of its forecast range, while adjusted earnings are expected at $ 2.30 per share. Micron is forecasting 47% adjusted gross margin this quarter, to within a percentage point. The company’s non-GAAP gross margin was 34.9% in the prior year period, while profits were $ 1.08 per share.
As a result, Micron’s profits are on track to more than double this quarter thanks to a 35% peak in revenue compared to the period last year. However, the company may again exceed expectations as the demand for memory in its end markets is not going to slow anytime soon.
The big picture points to sustained levels of high growth
Micron Technology divides its business into five end markets: data center, personal computers (PCs), graphics, mobile and automotive. Memory consumption in all of these end markets is increasing due to multiple factors.
For example, the data center market’s appetite for faster DRAMs and solid state drives (SSDs) is proving to be a tailwind for Micron. The company said that “new processors with more memory channels will accelerate server memory demand from the end of the year through CY22.” Moreover, the SSD market is expected to register an annual growth of nearly 15% until 2026, according to a third-party report.
Growing demand for PCs is also giving the SSD market a boost, which is not surprising as the market momentum related to coronaviruses won’t fade anytime soon. Meanwhile, the demand for specialized DRAM used in graphics cards is expected to continue to move north, as NVIDIA and AMD are trying to increase production to meet the huge demand from players.
The advent of 5G smartphones, on the other hand, has supercharged Micron’s mobile business. Its mobile business unit grew 31% year-on-year in the last quarter to $ 2 billion. The strong growth in the segment could last exceptionally long as sales of 5G smartphones are expected to increase.
And finally, Micron delivered 64% year-over-year growth in the embedded industry to a record $ 1.1 billion. The chipmaker attributes the impressive growth to record revenues in the automotive and industrial markets, a trend that is expected to continue in the future. That’s because demand for automotive memory is estimated to grow 24% per year according to third-party estimates, while the growing deployment of semiconductors in the industrial space will continue to remain a tailwind.
These multiple tailwinds are the reason Micron sees a growth in demand for DRAM bits among middle to high teens over the long term. The NAND demand forecast is brighter with an estimated long-term CAGR (compound annual growth rate) of 30%. Unsurprisingly, analysts expect Micron’s earnings to grow at an annual rate of over 63% over the next five years, making it a growth stock to buy right now, all the more so. that it trades at just 8.3 times the futures earnings compared to the five-year average multiple of 11.2 times.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.