Solid Datacenter & IoT Demand to Aid Micron (MU) Q2 Earnings
Micron Technology Inc. MU is likely to continue its upbeat performance, primarily driven by solid demand for the company’s DRAM products in datacenters, as well as markets like Internet of Things (IoT) and Artificial Intelligence (AI). The memory chip maker is scheduled to report second-quarter fiscal 2018 results this Thursday.
Notably, the company’s shares have already soared more than 23% in March so far, indicating optimism among investors for another quarter of overwhelming results.
The optimism surrounding the stock comes from the fact that the DRAM market is still witnessing a huge demand-supply gap which is escalating prices. And it should be noted that as Micron generates more than 65% of its revenues by selling DRAM products, it is the biggest beneficiary of this supply shortage.
In the last reported quarter, the company witnessed a year-over-year surge of 88% in DRAM revenues. The segment is anticipated to register impressive year-over-year growth in the to-be-reported quarter as well. Per the Zacks Consensus Estimate, DRAM revenues are pegged at $4,865 million for the fiscal second quarter, reflecting growth of 74% from the year-ago quarter tally.
Micron Technology, Inc. Price and EPS Surprise
Micron Technology, Inc. Price and EPS Surprise | Micron Technology, Inc. Quote
The company’s DRAM products are poised to benefit from huge demand as well as flaring up prices due to short supply. Let’s discuss what are the factors that are liable for this demand-supply mismatch.
Datacenters Demanding More Memory for Storage
The need for effective storage facility has been growing rapidly with the immense volume of data generated through smartphones and Internet-connected devices, along with the increasing adoption of artificial intelligence and cloud computing.
Market research firm International Data Corporation (IDC) forecasts that by 2025, the global datasphere will grow to 163 zettabytes (trillion gigabytes), which is 10 times the 16.1 zettabytes (ZB) of data generated in 2016. More importantly, almost 20% of this will be critical to daily lives and nearly 10% will be hypercritical.
Looking at the immense opportunity in data storage, data-center operators, such as Amazon AMZN, Alphabet GOOGL and Facebook FB, have accelerated their server-deployment efforts to grab market share in the cloud-service space, IDC noted in its fourth-quarter 2017 server shipment report.
This has been driving demand for DRAM content, of late. We believe the surge in demand will be conducive to Micron’s DRAM segment revenues in the fiscal second quarter.
Higher Capacity Smartphones Pushing Demand
Over the last few quarters, demand from smartphone makers for higher capacity DRAM content has gone up. Smartphone makers, including Samsung, OnePlus, HTC and Xiaomi, have come up with higher memory phones comprising RAM of 6 GB or 8 GB.
As per data compiled by DRAMeXchange, smartphones recorded 33.4% growth in DRAM content in 2017, to an average of 3.2 GB per device. As smartphone original equipment manufacturers (OEMs) plan to roll out devices with higher capacity, demand for DRAM is likely to shoot up much faster, thereby benefiting Micron’s top and bottom-line results.
Currently, Micron sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Today's Stocks from Zacks' Hottest Strategies
It's hard to believe, even for us at Zacks. But while the market gained +18.8% from 2016 - Q1 2017, our top stock-picking screens have returned +157.0%, +128.0%, +97.8%, +94.7%, and +90.2% respectively.
And this outperformance has not just been a recent phenomenon. Over the years it has been remarkably consistent. From 2000 - Q1 2017, the composite yearly average gain for these strategies has beaten the market more than 11X over. Maybe even more remarkable is the fact that we're willing to share their latest stocks with you without cost or obligation.
See Them Free>>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Amazon.com, Inc. (AMZN) : Free Stock Analysis Report
Facebook, Inc. (FB) : Free Stock Analysis Report
Alphabet Inc. (GOOGL) : Free Stock Analysis Report
Micron Technology, Inc. (MU) : Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research
