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Chipmakers thrive on bullish outlook; Micron stock hits 18-year high

Micron Technology (MU) is one of those rare Wall Street companies that consistently stayed in the positive territory, often defying adverse market conditions. The company’s stock, which maintained an uptrend since early April, gained further this week and hit an 18-year high.

The key to Micron’s industry-leading performance has been the growing demand for Dynamic Random-Access Memory (DRAM), aided by the fast-paced penetration of smartphones globally. The DRAM market, currently ruled by Samsung, is estimated to maintain a strong growth trajectory at least until 2020. DRAM products account for about 50% of the global memory market.

Betting on the ever-growing demand for additional memory space in smartphones, with new models hitting the market almost every day, Micron has embarked on a capacity expansion program covering most of its production locations. The other factors that contribute to the growing demand for DRAM and NAND are the penetration of artificial intelligence and cloud data centers, besides the growing adoption of crypto trading and digital gaming.

Take a look at Micron’s Q2 2018 earnings infographic:

Micron Technology earnings Q2 2018

Most of the leading chipmakers, including Intel (INTC) which recently forged a tie-up with Micron to roll out the first 4-bits-per-cell 3D NAND flash memory, are currently expanding their production capacity to meet the growing demand for memory products.

Micron stock gained 28% since the beginning of the quarter and more than doubled in the last 12 months, with the main growth driver being robust operating performance

Statistics show that DRAM revenues advanced 14.2% in the fourth quarter to a record high globally, primarily reflecting the favorable pricing for smartphone memory and back-to-back releases of new phone models. The remaining portion of revenues comes from the IT sector, where the leading players are busy expanding their data center networks.

While the trend is expected to continue in the foreseeable future, the emerging signs of stagnation in the smartphone market and falling NAND flash prices could derail growth. In general, the unpredictable volatility in demand, which is often determined by the end users of smartphones and computing devices, is something the semiconductor companies need to watch out for in the near term.

Registering a 14.5% sequential growth in DRAM sales, Samsung stayed ahead of its American peers in the fourth quarter. Among others, Micron, Qualcomm (QCOM), Broadcom (AVGO) and SK Hynix also recorded double-digit revenue growth, while Intel (INTC) came second in revenue generation.

Micron’s shares gained 28% since the beginning of the quarter and more than doubled in the last 12 months, moving closer to the $65-mark. The main growth driver has been the chipmaker’s impressive operating performance, marked by strong revenue and earnings growth. The latest rally was particularly catalyzed by positive reports from many analysts.

Last week, Micron got a significant boost on an unusually huge volume, after the company upgraded its sales and earnings guidance for the third quarter to reflect the upbeat trend in the semiconductor industry. Another contributor to the growing investor sentiment is the elevation of the share repurchase program to $10 billion. Micron is scheduled to announce its third quarter financial results on June 20.

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