Low Valuation Belies Positives Underlying Micron Technology Stock

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Micron Technology (NASDAQ:MU) remains at the forefront of the sector from a tech perspective, the company’s financial results have been strong yet MU stock is still very cheap.

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Computer memory prices have been easing in recent months after an extremely strong start to the year. Nonetheless, the prices are poised to remain strong over the long-term, driven by the unprecedented proliferation of memory-intensive devices and systems.

Given these points, I remain very bullish on MU stock.

Short-Term Price Drops, Long-Term Strength

Micron focuses on selling computer memory products; 72% of its sales are generated by a type of memory called DRAM and another type of memory called NAND accounts for 25% of its sales.

Between September 2019 and April 2021, DRAM prices soared 75%, reaching $4.35 per gigabyte, Jim Handy, the director of research firm Objective Analysis told Semiconductor Engineering recently.

Since April, the prices have declined to $3.30, which is “still 33% above the 2019 low point,” Handy stated. Two of the biggest reasons for the recent declines were a decision by PC makers to use more of the DRAM inventories they’ve accumulated for now and “shortages” of “other key components.” Citing strong demand and the lack of a supply glut. Hardy expects DRAM prices to be “flat to a little up” in 2022,

Fundamentally, a few important trends are likely to keep DRAM prices strong and rising over the medium-to-long term. Among these are the increasing importance of data analysis to many businesses, continued powerful demand from server makers for DRAM amid high demand for servers from data centers, and the rapid  growth of the AI, Internet of Things and 5G markets. Additionally, the amount of DRAM in each smartphone has continuously been rapidly rising since 2017.

On the NAND side, smartphone usage of the memory has jumped at a compound annual growth rate of about 37% for Android and 20% for Apple’s (NASDAQ:AAPL) iOS since 2015.

As the storage requirements of smartphones continue to increase, their utilization of NAND is expected to continue to climb going forward. Likewise, PC storage demand has constantly climbed meaningfully in recent years and is expected to continue to do so.

Hardy expects NAND sales to rise in Q1 versus Q24, and he says that the market is so strong that it could support more vendors. For its part, Micron predicts that demand for its NAND will jump about 30% in 2022.

Other Positive Signs

In recent quarters and years, Micron has delivered very strong financial results. For example, in its fiscal Q4 that ended on Sept. 2, the company’s revenue jumped to $8.27 billion from $7.27 billion versus the same period a year earlier. Its top line reached the second highest level in its history in Q4. And its operating cash flow climbed to $3.88 billion from $2.27 billion versus the same period a year earlier.

In FY21, its top line climbed to $27.7 billion from $21.435 billion in FY20, while its operating income more than doubled to $6.8 billion from $3 billion.

Also positively, on Oct. 20, Micron announced that it would spend $150 billion in the next 10 years to boost its manufacturing and R&D capabilities The company said it would allocate the funds to “address increasing demand for memory that is essential to all computing.”

The fact that the chip maker is willing to spend so much money on its business indicates that it’s quite confident in its outlook.

Finally, Micron appears to be at the technological forefront of the computer memory sector.

For example, the company stated that it had recently sped up its 1-Alpha DRAM and 176-layer NAND chips by 20%-30%. The firm added that it has “deep partnerships with leading {graphics processing unit} suppliers.”

Valuation and the Bottom Line on MU Stock

Micron has strong, multiple positive catalysts. And the longer-term outlook for the computer memory space is very strong.

Yet MU stock has a forward price-earnings ratio of less than 15, making the shares a definite buy for patient investors.

On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article. 

Larry Ramer has conducted research and written articles on U.S. stocks for 14 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been Ford, solar stocks, and Snap. You can reach him on StockTwits at @larryramer. 

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