Memory demand has been booming in 2024 as semiconductor companies, smartphone original equipment manufacturers (OEMs), and personal computer (PC) makers look to get their hands on compute and storage memory chips to churn out more artificial intelligence (AI) processors, generative AI smartphones, and AI-enabled PCs.
As a result, the top and bottom lines of Micron Technology (NASDAQ: MU) are now growing at a breathtaking pace . However, the same cannot be said for the stock. Micron stock hit a 52-week high on June 18, but it has slid 40% since then despite delivering stellar financial results. The stock's slide over the last three months can be attributed to the overall negativity in the semiconductor space -- the PHLX Semiconductor Sector index has pulled back 16% during this period.
The sector was hit by multiple headwinds, including potential trade restrictions on shipping equipment to China, uncertainty surrounding the U.S. election, and concerns about the health of the U.S. economy. Despite the perceived headwinds, the quarterly results for other key semiconductor companies like Nvidia , Marvell Technology , and Broadcom have been solid of late and topped already lofty expectations from Wall Street.
It won't be surprising to see Micron Technology follow in the footsteps of its peers when it releases its fiscal 2024 fourth-quarter results on Sept. 25. Let's look at the reasons why.
The memory market's health could help Micron Technology deliver splendid results
According to market research company TrendForce, the dynamic random-access memory (DRAM) industry's revenue increased 25% quarter over quarter in the second quarter of calendar 2024. TrendForce adds that all industry players, including Micron, witnessed an increase in shipments during the quarter. More importantly, the average selling price (ASP) of DRAM also increased as demand outpaced supply.
Micron Technology guided for $7.6 billion in revenue for fiscal Q4 (which ended in August). That would translate into a sequential jump of 12%. However, TrendForce's estimate that the DRAM industry grew at a much faster pace than that on a sequential basis suggests that Micron could deliver stronger growth when it releases its results later this month.
On a year-over-year basis , Micron's revenue guidance points toward a jump of 90%. The company's adjusted earnings estimate of $1.08 per share would be a huge improvement from the loss of $1.07 per share it incurred in the same quarter last year. However, we have already seen that Micron may be able to exceed its guidance because of the stronger estimated growth in the DRAM industry.
On the other hand, TrendForce points out that the price of NAND flash storage memory kept rising in the second quarter of 2024, leading to a 14% sequential jump in revenue. The good news for Micron investors is that memory prices are expected to head higher in the third quarter as well. More specifically, an increase of 8% to 13% is expected in DRAM prices in the current quarter. Meanwhile, NAND flash average selling prices are likely to increase by 5% to 10% quarter over quarter in Q3.
So, Micron seems set to deliver healthy guidance as well as solid results later this month. Analysts expect the company's revenue in the first quarter of fiscal 2025 (which has just begun) to hit $8.55 billion, which would be a 12.5% sequential increase over the previous quarter. The potential increase in DRAM and NAND flash prices indicates that Micron's guidance could indeed be as strong as analysts expect.
The valuation makes buying this chip stock a no-brainer before its quarterly results
The significant pullback in Micron Technology stock in the past three months is the reason why it is trading at a really attractive 4.5 times sales and 10 times forward earnings. Considering the elevated levels of growth that this semiconductor stock delivers, buying it at its current valuation is an opportunity investors should not miss, especially considering how fast its earnings are forecast to grow over the next couple of years.
MU EPS Estimates for Current Fiscal Year data by YCharts
Even better, Micron may be able to sustain its healthy growth for a longer period as the global memory market is forecast to generate $360 billion in revenue in 2029, compared to $136 billion in 2022, according to Fortune Business Insights. So, investors are getting a great deal on a stock that could not only deliver impressive growth in the near term, but also remain a solid long-term bet because of the favorable prospects of the memory industry.
That's why they would do well to buy Micron stock while it trades at attractive levels, as a potential beat-and-raise quarterly report on Sept. 25 could spark a bull run.
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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia. The Motley Fool recommends Broadcom and Marvell Technology. The Motley Fool has a disclosure policy .
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