Any doubts about Micron Expertise (NASDAQ: MU) inventory’s capability to ship the terrific upside that Wall Road 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 stable steerage, and identified that the reminiscence market will proceed to stay in good well being on account of strong 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 you ought 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 steerage 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 greater than the midpoint of its authentic steerage of $1.62 per share.
Wall Road was anticipating Micron to ship $1.72 per share in earnings on $7.23 billion in income, however a mix of robust reminiscence demand and pricing helped it clear these estimates. For example, Micron’s DRAM (dynamic random entry reminiscence) income shot up 23% quarter over quarter and 52% yr over yr. The section produced 73% of Micron’s complete income and benefited from a 20% quarter-over-quarter soar within the common promoting worth (ASP) and a low-single-digit enhance in bit shipments.
The NAND flash enterprise that accounted for twenty-four% of Micron’s complete income additionally reported strong progress. The section’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 enhance 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 steerage can also be spectacular. The corporate anticipates $8.2 billion in income on the midpoint of its steerage 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 high 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 massive image factors towards sustained ranges of excessive progress
Micron Expertise divides its enterprise into 5 finish markets — information middle, private computer systems (PC), graphics, cellular, and auto. Reminiscence consumption in all these finish markets is rising because of a number of elements.
For example, the info middle 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 predicted to clock practically 15% annual progress via 2026, in accordance with a third-party report.
The rising demand for PCs can also 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 transferring north, because the likes of NVIDIA and AMD are attempting to spice up manufacturing to meet the tremendous demand from avid gamers.
The appearance of 5G smartphones, then again, has supercharged Micron’s cellular enterprise. Its cellular enterprise unit recorded 31% year-over-year progress final quarter to $2 billion. The section’s scorching progress may final for an exceptionally very long time contemplating that 5G smartphone gross sales are set to fly higher.
And eventually, 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 house will proceed to stay a tailwind.
These a number of tailwinds are the explanation 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 charge) of 30%. Not surprisingly, analysts anticipate Micron’s earnings to develop at an annual charge 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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