Notably, improving stability in the levels of NAND and DRAM inventories is expected to benefit DRAM and NAND pricing. Moreover, a sequential increase in worldwide chip sales in July indicates growing demand, which is positive for Micron stock.
Shares of Micron have soared 56.3% year to date compared with the S&P 500 Index’s 19.9% gain.
Stabilizing Memory Prices: A Ray of Hope?
MU seems to be benefiting from stabilizing memory demand. Memory shipments are on an uptrend, courtesy of select U.S. hyperscalers, content improvement by Chinese mobile device makers and the risk of tightening supply due to the Japan-Korea dispute.
In the PC market, DRAM bit shipments resumed growth in the last reported quarter, as chip shortages started to improve. MU expects strong sequential DRAM bit growth to boost its Q4 results as laptop sales increase.
Per the Semiconductor Industry Association, worldwide sales of semiconductors came in at $33.4 billion in July 2019, an increase of 1.7% sequentially. That is expected to have a positive impact on the memory chip sales of Micron, which is one of the leading players of the semiconductor market.
Within the data center market, Micron’s cloud customers are approaching normal inventory levels, which is positive for MU and Micron stock.
In the last reported quarter, the company’s cloud DRAM bit shipments grew sequentially. Management has said that these early trends indicate strong sequential growth of DRAM bit shipments in Q4 as well. Notably, MU earlier announced that it is idling 5% of its DRAM wafer starts and curbing capital expenditures. These measures will likely enable the company to reach a balanced inventory level in the second half of 2019.
However, there is a glut in the market due to the industry’s transition from 2D planar NAND production to 3D NAND. NAND bit demand could be helped by price declines in the wake of the glut. However, due to the ongoing shift of the SSD portfolio, NAND shipment growth in Q4 was likely stunted.
Therefore it remains to be seen to what extent the surging memory market will impact Micron’s Q4 revenue and Micron stock.
Zacks Rank & Other Key Picks
Micron currently carries a Zacks Ranks of #2 (Buy). Some other top-ranked stocks in the broader technology sector are LogMeIn (NASDAQ:LOGM), Anixter International (NYSE:AXE ) and Perficient (NASDAQ: PRFT), each flaunting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Long-term earnings growth rate for LogMeIn, Anixter and Perficient is currently pegged at 5%, 8% and 10.75%, respectively.
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