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Semiconductors are increasingly being used in different applications, including 5G, data centers, Internet of Things (IoT), mobiles and automotive applications.
According to a Fortune Business Insights report, while the semiconductor market was worth $425.96 billion last year, it is expected to grow to $803.15 billion in 2028. This indicates a compounded annual growth rate (CAGR) of 8.6% between 2021 and 2028.
Using the TipRanks Stock Comparison tool, let us compare two semiconductor companies, Intel and Micron Technology, and see how Wall Street analysts feel about these stocks.
Intel’s operating segments include data center group, IoT, Mobileye, Non-volatile memory solutions group (NSG), Programmable solutions group (PSG) and Client Computing Group (CCG).
INTC’s products include processors that power PCs, a standalone system-on-a-chip (SoC), a multichip package and memory and storage products.
In Q1, Intel reported adjusted earnings of $1.39 per share, a decline of 1% year-over-year, while revenue remained flat at $18.6 billion. The company also saw a new CEO, Pat Gelsinger, at its helm in mid-February.
The new CEO has proposed an investment of as much as $20 billion into two new chip manufacturing facilities in Arizona. He dubbed this strategic move as one which will reinvent the company. In his words, “Intel is back. The old Intel is now the new Intel.”
For 2Q, Intel expects adjusted revenue of $17.8 billion and non-GAAP earnings is expected to be $1.05 per share. In FY21, the company has forecast adjusted revenue and non-GAAP earnings to be $72.5 billion and $4.60 per share, respectively.
Intel expects data center revenues to rise in the second quarter, with demand rising in the second half of this year as “both cloud enterprise and government segments returned to growth.” In FY21, the company foresees a strong demand for PCs and expects that its total addressable market (TAM) and internal supply of PCs will both grow in the double digits year-over-year.
The company is optimistic about its third-generation Intel Xeon Scalable processor, named Ice Lake, “which offers nearly 50% gen-over-gen performance improvements across a range of workloads." Currently, Intel is shipping Ice Lake processors to around 30 customers, including major cloud providers, communication service providers, enterprise and high-performance computing (HPC) customers.
However, Intel expects revenue for Intel's Client Computing Group (CCG) to “be more first half-weighted than normal seasonality” as a result of supply constraints in the industry and a decline in demand for modems and Apple (AAPL) Mac computers powered by Intel processors.
Yesterday, Intel announced a couple of changes to its business units. The company’s Data Platform Group (DPG) will be split into two new business units: Datacenter and AI, and Network and Edge Group. (See Intel stock chart on TipRanks)
Additionally, INTC also announced the creation of two new business units, with one, the Software and Advanced Technology group, focused on software. The other, the Accelerated Computing Systems and Graphics Group, will focus on high performance computing (HPC) and graphics.
Following the announcement, Mizuho Securities analyst Vijay Rakesh reiterated a Buy with a price target of $72 (28.87% upside) on the stock. Rakesh commented on the changes, “We believe the changes sharpen and add accountability to execution in key focus markets from GPUs to Datacenter/AI to Networking.”
The analyst views positive trends for the stock including “1) Enterprise rebound, 2) better Ice Lake availability, and 3) above-consensus PC Notebook ramps.”
Consensus among analysts on Wall Street is a Hold based on 11 Buys, 11 Holds, and 7 Sells. The average Intel analyst price target of $64.80 implies approximately 16% upside potential to current levels.
Micron Technology has a portfolio of memory and storage products including DRAM, NAND, and NOR products through the Micron and Crucial brands. The company reported revenues of $6.24 billion in Q2, up by around 30% year-over-year, with diluted earnings of $0.53 per share versus $0.36 per share in the same quarter last year.
Micron is expected to report its fiscal third quarter results on June 30. The company expects revenues of $7.1 billion in Q3 that could vary by $200 million, while the forecast for diluted earnings is $1.52 per share, which is expected to increase or decrease by $0.07 per share.
The company admitted at its fiscal second quarter earnings call that the DRAM market is facing severe shortages, while the NAND market appears to be stabilizing in the short term. The company said that it will continue to monitor the DRAM situation closely.
Earlier this month, Rosenblatt Securities analyst Hans Mosesmann reiterated a Buy with a price target of $165 on the stock. Mosesmann said about the DRAM prices, “In terms of contract DRAM prices, our checks conclude prices are set for double-digit growth in Q3 generally, and likely another double-digit move up in Q4 driven by infrastructure end-markets.”
The production of Micron’s 1-alpha DRAM and 176-layer NAND nodes is increasing in volume and the company expects these nodes to be its key products in FY22. Micron expects robust demand from hyperscale customers in the United States in the second half of this year for its cloud DRAM bit shipments.
Mosesmann mentioned in the research report that the DRAM chips are pivotal for data centers, 5G broadband, automotive uses, and wireless technologies. Without memory growth in the semiconductors, these industries can not scale.
Micron said at its earnings call that it expects bit growth for DRAM this year at 20%. The company’s President and CEO, Sanjay Mehrotra added, “As a result of the strong demand and limited supply, the DRAM market is currently facing a severe undersupply, which is causing DRAM prices to increase rapidly. We see the DRAM market tightening further through the year.” (See Micron stock chart on TipRanks)
When it comes to NAND products, the company expects bit growth in the low to mid-30% range this year. Over the long term, MU anticipates a bit demand compounded annual growth rate (CAGR) for DRAM in the mid-to-high teens, while for NAND it is expected to be around 30%.
Mehrotra stated at Micron’s Q2 earnings call, “In both DRAM and NAND, we expect our calendar 2021 bit supply growth to be below the industry demand growth, and we have used our inventory to add to our bit shipment growth this year. We are targeting fiscal 2021 CapEx to be approximately $9 billion to support our long-term goal of maintaining a stable share of industry bit supply.”
Consensus among analysts on Wall Street is a Strong Buy based on 17 Buys and 4 Holds. The average analyst Micron price target of $118 implies approximately 51.9% upside potential to current levels.
While analysts are sidelined on Intel, they are bullish about Micron. According to analyst Vijay Rakesh, Intel could be at risk from a PC market that is maturing quickly and a difficult comparison in the tablet market along with “limited traction” in the wireless market.
Meanwhile, Mosesmann believes that while the memory industry is cyclical, and Micron is in a better competitive position with its products, any delay in product releases could result in the company’s customers moving to its competitors. That would result in financial pressure on the company.
Based on the upside potential over the next 12 months, Micron seems a better Buy.
Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.