Micron’s (NASDAQ:MU) near-term and longer-term prospects remain very strong, and the company is extremely profitable. But despite all of that, MU stock is still trading at a tiny valuation.
Meanwhile, multiple, highly reputable Wall Street firms are very bullish on the shares. Consequently, I remain very upbeat on the shares.
Micron’s Outlook Is Still Very Strong
In my previous column on MU stock, published last Nov. 23, I wrote that a “few important trends are likely to keep DRAM prices strong and rising over the medium-to-long term.”
On Jan. 27, Samsung, which makes more memory chips than any other company, “was…cautiously upbeat on the possibility of a turnaround in the price of DRAM chips,” Reuters reported. “Some organisations have forecast DRAM prices could reverse in the first half. We think this is a possible scenario,” the conglomerate’s Executive VP, Memory Chips, Han Jin-man, was quoted as saying.
Also upbeat on the outlook for DRAM and NAND chips recently was New Street Research analyst Pierre Ferragu.
“Micron is set to benefit from the strong secular and cyclical setup we see for DRAM,” stated Ferragu, adding that, over the longer term the chip maker will get a boost from improving profitability in NAND.
Strong Results and Powerful Catalysts
Already in its fiscal first quarter, in-line with my previous expectations, Micron’s financial results were lifted by powerful demand for memory chips and from its cost-cutting efforts.
Specifically, its revenue jumped to $7.69 billion, up from $5.77 billion during the same period a year earlier. And its operating income surged to $2.63 billion, versus $866 million.
In the first quarter, Micron’s data center revenue soared 70% YOY. During the current quarter, the company expects its sales to data centers to climb significantly versus Q1, partly due to a new line of chips that it has launched. And encouragingly, despite the easing of the coronavirus pandemic, Micron’s CEO, Sanjay Mehrotra, on Dec. 20 said “As we enter calendar year 2022, we expect PC unit sales to be in line with those for calendar year 2021.”
Also likely to boost Micron’s sales going forward are “AI, 5G and EV adoption,” Mehrotra reported, adding that “New EVs are becoming like a data center on wheels.” In graphics chips, Micron is partnering with both AMD (NASDAQ:AMD) and Nvidia (NASDAQ:NVDA). Finally, in mobile chips, Micron’s revenue jumped 25% YOY in Q1, and Mehrotra expects the 5G transition to be a positive catalyst for Micron this year.
Multiple Street Analysts Are Bullish on MU Stock
Last month, labeling chips the “new oil,” Bank of America identified Micron as one of its top picks in the semiconductor sector. Among the positive catalysts for the space in 2022 will be “expanding cloud services, automobiles and increases in corporate capital spending,” Seeking Alpha quoted the bank as saying.
Further, the analyst thinks that DRAM prices can climb starting in calendar Q3. The firm hiked its price target on MU stock to $118 from $100.
Also, optimistic about Micron last month was Mizuho Securities. The firm expects the company to benefit from strong demand and less volatile supply in 2022. Additionally, Mizuho predicts that DRAM prices will climb this year.
Finally, New Street’s Ferragu expects Micron to be boosted over the long term by the higher margins of its NAND business and from “important synergies between {its} DRAM and NAND” units.
The Bottom Line
Micron has a very bright future, but MU stock has a tiny price-earnings ratio (for the tech sector) of just 12.5, according to Marketwatch.
After climbing 11.3% in the last three months, I expect the shares to advance further in the medium term and in the long term. As a result, I believe that the shares, which have slumped 13% in 2022, should be bought on their current weakness.
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 15 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.