Micron Technology (MU, Financial) is set to report its second quarter results on March 22. It has positioned itself to capitalize on the consumption of data.
The company manufactures memory chip products, which are key to cloud hardware, computers, and smartphones. The company is set to earn between $15 and $20 per share over the next two years, and if the reliance on data continues to rise, Micron could reap profits for a long time.Â
With a $50 billion market capitalization, the value could double in the next few years just on a multiple expansion. This would happen if the market believes Micron’s earnings are consistent enough to last.
Guru ownership
David Tepper (Trades, Portfolio) owns 27,500,000 shares now thanks to a big recent addition. That’s 12.93% of his total portfolio. Fellow guru investor David Einhorn (Trades, Portfolio) reduced his stake while Tepper was adding to his, but still owns 3.4 million shares, good for 2.54% of his assets under management. In January Tepper said that he thinks the stock market is "as cheap" as it was in 2017. He obviously still thinks Micron is a massive bargain.
Higher guidance
Micron Technology continues to guide higher now expecting EPS between $2.70 and $2.75, versus its prior guidance range of $2.51 to $2.65, and revenue of $7.28 billion versus $7 billion.Ă‚
The demand for mobile, server, and solid state drive components should keep rising. No one is putting their phones down or going back to 90’s dial up connections. Now that technology is catching up to desire, Micron is reaping the rewards on its investments.
High margins will spur competition
HIgh margins of 55-60% if sustained will drive cash to the bottom line.
In fact, Micron partnered with Intel (INTC, Financial) in 2005 to create better NAND flash memory technology and Intel has already introduced a number of 3D XPoint products for what’s called Bit storage, used to deliver data faster. While Intel's chips are currently geared for PCs, and Micron's for servers, it could shift focus and put the two companies in direct competition.
Micron already faces strong competition from Samsung and SK Hynix as well as many Chinese manufacturers, which would likely intensify if Intel licensed its technology to them in 2019 after the Intel/Micron development partnership ends.
Bit growth will be a revenue driver for Micron as it expects the DRAM industry bit growth to reach 20% in fiscal 2018, thanks to ongoing expansion of cloud data centers, while NAND industry bit growth is expected to eclipse 50% due to the ramp up of 64-layer designs, which are becoming more profitable to manufacture.
Disclosure: I am not long/short any stocks mentioned in this article.
