August 9, 2022

1 Green Flag for Micron Technology in 2022, and 1 Red Flag

Micron Technological innovation (NASDAQ:MU) stock is carrying outstanding momentum into 2022, thanks to the memory specialist’s remarkable fiscal 2022 initial-quarter outcomes, launched on Dec. 20.

The chipmaker documented robust leading- and bottom-line growth, while its next-quarter steering was also far better than what Wall Avenue was on the lookout for. This led to a surge in Micron’s stock adhering to its quarterly report, as the corporation indicated that there is a healthful demand for memory chips from quite a few verticals, and vanquished any issues about a memory provide glut.

The overall health of the memory industry will be a major eco-friendly flag for Micron in 2022. Let’s see why.

Two people in casual clothes looking at a laptop screen.

Picture resource: Getty Images.

Strong memory demand from customers will be a tailwind for Micron Technologies in 2022

Micron expects DRAM (dynamic random-obtain memory) bit desire to boost in the mid- to high teens upcoming yr. In the meantime, NAND (short for “not and”) flash memory demand from customers is envisioned to accelerate 30% in 2022. Micron anticipates the lengthy-phrase little bit need for DRAM and NAND flash memory to enhance at a rate that would be equivalent to 2022.

Micron is counting on strong memory desire to help it produce document earnings and strong profitability in the current fiscal 12 months. The corporation details out that memory demand remains potent throughout all its close marketplaces. For occasion, in individual pcs (PCs) and graphics, Micron thinks that stock adjustments at most shoppers are by now done. As a consequence, Micron sees stable demand from customers for memory chips from the Pc industry in 2022.

Micron administration anticipates Personal computer product sales in 2022 to continue being regular with 2021 ranges and adds that far more PCs are now applying very low-power DRAM. Much more specially, low-ability DRAM accounts for 20% of the Pc industry’s DRAM little bit demand from customers at existing, and that selection is predicted to head greater in 2022 and past.

On the other hand, much more and additional PCs are now turning to strong-point out drives (SSDs) for speedier storage. All over 100 million SSDs have been delivered in the 1st quarter of 2021 as as opposed to 64 million really hard-disk drives (HDDs). Technavio estimates that global SSD profits will continue on to increase in the lengthy run, clocking an annual progress fee of 23.6% by 2025. Provided that Micron’s most current era of consumer SSDs have been skilled for use by numerous Computer authentic tools suppliers (OEMs) and are now in quantity production, it seems effectively-positioned to capitalize on developing SSD need.

Provided that 5G smartphones are applying 50% extra DRAM and double the NAND flash information as as opposed to 4G smartphones, and their shipments are expected to increase 40% in 2022, it really is simple to see why Micron expects a healthier desire surroundings to prevail in 2022. Furthermore, the increasing adoption of SSDs in info facilities is one more tailwind for the memory market place. Micron’s info center earnings was up 70% yr more than yr in the fiscal first quarter, and the company sees even more growth in this segment as facts facilities deploy more SSDs as an alternative of tricky-disk drives.

So, mounting memory desire will be Micron’s largest development driver in 2022. Nevertheless, there is a single crimson flag that investors should continue to keep an eye on, as it could derail Micron’s wonderful rally.

The purple flag investors would not want to overlook

Although robust memory desire could be a eco-friendly flag for Micron in 2022, field watchers are wary that oversupply could deliver the current market into a tailspin in the second fifty percent of the year. Gartner is a single of the research organizations anticipating a memory oversupply in the second 50 % of 2022, thanks to better offer and weakening demand, which would sooner or later direct to a reduction in memory costs.

In the meantime, memory sector researcher TrendForce estimates that potential enlargement by memory suppliers could lead to a 17.9% enhance in DRAM bit source in 2022. What is alarming is that DRAM demand from customers is predicted to improve 16.3%, according to TrendForce’s estimates, and mail the memory sector from a state of lack to just one of surplus.

As a final result, TrendForce forecasts that the price tag of DRAM could drop by concerning 15% and 20% in 2022. The DRAM business could make in general revenue of $90 billion in 2022, which would be identical to 2021 stages, as the likely drop in cost could erase any gains arising out of an maximize in shipments. This could be poor news for Micron, mainly because 73% of its complete earnings in the initially quarter of fiscal 2022 arrived from advertising DRAM chips.

This is a key pink flag that Micron investors should really hold an eye out for, as weak memory selling prices have historically wrecked the chipmaker’s leading and bottom traces. So, even nevertheless this substantial-traveling expansion stock is carrying outstanding momentum into the new 12 months, it would be a excellent notion to glance out for any opportunity indicators of weak point in memory price ranges.

This post represents the viewpoint of the writer, who may perhaps disagree with the “official” recommendation position of a Motley Idiot premium advisory support. We’re motley! Questioning an investing thesis — even one particular of our very own — helps us all assume critically about investing and make decisions that assistance us grow to be smarter, happier, and richer.