Red-Hot Micron Technology Could Soar Higher After Its Latest Earnings Report – The Motley Fool

Micron Technology's ( MU -2.19% ) revenue and earnings in the second quarter of fiscal 2022 blew past Wall Street's expectations earlier this week. The company benefited from the robust demand and pricing of memory chips that are used in several applications, ranging from smartphones to computers to data centers and automotive. Micron's fiscal third-quarter guidance was the cherry on the cake, as it indicates that its momentum is here to stay.

Let's take a closer look at Micron's latest results and see why they offer further indications that this semiconductor stock is worth buying right now.

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Micron's fiscal Q2 revenue increased 25% year over year to $7.79 billion, while adjusted earnings more than doubled to $2.14 per share from $0.98 per share in the prior-year period. The company was originally expecting $1.95 per share in earnings on $7.5 billion in revenue at the midpoint of its guidance range, but it easily cleared the higher end of its range. This wasn't surprising, as Micron went into its quarterly report with some solid tailwinds.

Analysts were expecting $1.98 per share in earnings on $7.53 billion in revenue. However, a strong product mix, cost reductions, and strong demand for Micron's memory chips, especially in the solid-state drive (SSD) and automotive markets, led to a stronger-than-expected showing from the company. In fact, a favorable demand and pricing environment sent Micron's adjusted gross margin to 47.8% last quarter, up significantly from 32.9% in the year-ago period.

Coming to the guidance, Micron anticipates$2.46 per share in earnings this quarter on revenue of $8.7 billion, edging out the consensus estimate of $2.24 per share in earnings and $8.13 billion in revenue. The midpoint of the guidance would translate into year-over-year revenue growth of 17% and earnings growth of 31%, though it wouldn't be surprising to see the company turn in a better performance on account of the favorable developments in the memory market.

Micron's terrific growth last quarter was driven by a sharp increase in revenue from both the DRAM (dynamic random access memory) and the NAND (short for "not and") flash memory segments. The DRAM business produced 73% of Micron's top line during the quarter, with revenue increasing 29% year over year. NAND flash revenue increased 19% year over year and accounted for a quarter of Micron's top line.

The DRAM business is sitting on multiple tailwinds that are here to stay for the long run. The transition to 5G smartphones, for instance, is driving increased DRAM demand. That's because 5G smartphones are using 50% more DRAM content over 4G devices. Similarly, NAND flash content in 5G smartphones has doubled thanks to the demand for more storage.

The automotive and industrial markets, on the other hand, could becomethe "fastest-growing memory and storage markets over the next decade," according to Micron. The chipmaker generated record revenue from this segment last quarter, and it expects solid growth ahead thanks to the growing adoption of electric vehicles (EVs). More specifically, Micron says that EVs equipped with Level 3 autonomous driving capability carry about $750 worth of memory and storage content. That's 15 times higher compared to an average car.

The data center market is yet another major catalyst for Micron. The company says that data centers became the largest market for memory and storage last year. Memory and storage demand from data centers is expected to grow at a faster pace than the broader industry over the next decade, driven by the proliferation of cloud computing and AI/ML (machine learning) workloads.

For instance, market research firm TechNavio estimates that the data center storage market is set to clock a compound annual growth rate of 27% through 2024. As it turns out, Micron is growing at a faster pace than the data center storage market. The company's data center SSD revenue doubled year over year last quarter, and it expects the momentum to continue for the rest of the year.

Micron stock has started regaining its mojo over the past couple of weeks, and its latest quarterly report is likely to add more fuel to its rally.

MU data by YCharts

That's why investors who haven't bought Micron stock so far should consider doing so right away, as it is still availableat a cheap price-to-earnings ratio of 12.7, which is a big discount to the Nasdaq-100 Technology Sector Index's multiple of 33. But this growth stock may not be available at such a cheap valuation in the future given its secular growth opportunity, which is why investors may need to act quickly.

This article represents the opinion of the writer, who may disagree with the official recommendation position of a Motley Fool premium advisory service. Were motley! Questioning an investing thesis even one of our own helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Red-Hot Micron Technology Could Soar Higher After Its Latest Earnings Report - The Motley Fool