Any doubts about Micron Expertise (NASDAQ: MU) inventory’s means to ship the terrific upside that Wall Avenue expects it to deliver over the approaching yr had been put to relaxation after its fiscal 2021 third-quarter earnings report.
The reminiscence specialist handsomely crushed analysts’ expectations, issued strong steering, and identified that the reminiscence market will proceed to stay in good well being on account of sturdy demand. Briefly, Micron hinted that its days of terrific progress are right here to remain. Let’s have a look at why that could be the case, and why try to be shopping for the inventory if you have not already.
Picture supply: Getty Photos.
Micron Expertise delivers excellent progress as soon as once more
Micron Expertise’s Q3 income shot up 36.5% yr over yr to $7.4 billion, which simply exceeded the upper finish of the corporate’s authentic steering of $7.3 billion. The chipmaker’s non-GAAP earnings jumped to $1.88 per share from the prior-year interval’s determine of $0.82, which was a lot larger than the midpoint of its authentic steering of $1.62 per share.
Wall Avenue was anticipating Micron to ship $1.72 per share in earnings on $7.23 billion in income, however a mixture of sturdy reminiscence demand and pricing helped it clear these estimates. As an example, Micron’s DRAM (dynamic random entry reminiscence) income shot up 23% quarter over quarter and 52% yr over yr. The phase produced 73% of Micron’s whole income and benefited from a 20% quarter-over-quarter leap within the common promoting value (ASP) and a low-single-digit improve in bit shipments.
The NAND flash enterprise that accounted for twenty-four% of Micron’s whole income additionally reported sturdy progress. The phase’s income elevated 10% quarter over quarter and 9% yr over yr, pushed by a high-single-digit proportion bump within the ASP and a low-single-digit proportion improve in bit shipments. The improved pricing additionally gave Micron’s gross margin a giant shot within the arm. Its adjusted gross margin jumped from 33.2% within the year-ago quarter to 42.9% in Q3.
Micron’s fourth-quarter steering can be spectacular. The corporate anticipates $8.2 billion in income on the midpoint of its steering vary, whereas adjusted earnings are anticipated at $2.30 per share. Micron forecasts 47% in adjusted gross margin this quarter, give or take one proportion level. The corporate’s non-GAAP gross margin stood at 34.9% within the prior-year interval, whereas earnings got here in at $1.08 per share.
So, Micron’s earnings are on observe to greater than double this quarter on the again of a 35% spike within the prime line as in comparison with the year-ago interval. Nevertheless, the corporate can exceed expectations as soon as once more, as reminiscence demand from its finish markets is not going to decelerate any time quickly.
The large image factors towards sustained ranges of excessive progress
Micron Expertise divides its enterprise into 5 finish markets — knowledge heart, private computer systems (PC), graphics, cell, and auto. Reminiscence consumption in all these finish markets is rising because of a number of components.
As an example, the info heart market’s urge for food for sooner DRAM and solid-state drives (SSDs) is popping out to be a tailwind for Micron. The corporate says that “new CPUs that includes extra reminiscence channels will speed up server reminiscence demand beginning later this yr and persevering with into CY22.” Moreover, the SSD market is anticipated to clock almost 15% annual progress by 2026, in line with a third-party report.
The rising demand for PCs can be giving the SSD market a lift, which is not shocking because the market’s coronavirus-related momentum won’t be fading away any time quickly. In the meantime, the demand for specialty DRAM utilized in graphics playing cards is prone to preserve shifting north, because the likes of NVIDIA and AMD try to spice up manufacturing to meet the tremendous demand from avid gamers.
The arrival of 5G smartphones, however, has supercharged Micron’s cell enterprise. Its cell enterprise unit recorded 31% year-over-year progress final quarter to $2 billion. The phase’s scorching progress might final for an exceptionally very long time contemplating that 5G smartphone gross sales are set to fly higher.
And at last, Micron recorded 64% year-over-year progress within the embedded enterprise to a document $1.1 billion. The chipmaker credit this spectacular progress to document income within the automotive and industrial markets, a development that is prone to proceed sooner or later. That is as a result of automotive reminiscence demand is reportedly rising at 24% a yr as per third-party estimates, whereas increasing semiconductor deployment within the industrial area will proceed to stay a tailwind.
These a number of tailwinds are the rationale why Micron sees DRAM bit demand progress of mid-to-high teenagers in the long term. The NAND demand forecast is brighter with an estimated long-term CAGR (compound annual progress fee) of 30%. Not surprisingly, analysts count on Micron’s earnings to develop at an annual fee of over 63% for the subsequent 5 years, making it a top growth stock to purchase proper now, particularly contemplating that it trades at simply 8.3 occasions ahead earnings as in comparison with the five-year common a number of of 11.2 occasions.
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Harsh Chauhan has no place in any of the shares talked about. The Motley Idiot owns shares of and recommends NVIDIA. The Motley Idiot recommends Superior Micro Units. The Motley Idiot has a disclosure policy.
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