It’s safe to say that semiconductor stocks are well-positioned to have a big 2021. With market tailwinds driving strong demand for the high-tech chips that power digital devices, the sector could continue to see huge gains moving forward. When you consider the fact that more people are working from home than ever before, many companies are spending big on the cloud, and digital content on mobile devices is advancing at a rapid pace, it’s easy to understand why adding shares of stocks in the sector could pay off in a big way.
One of the most intriguing options in the semiconductor space is Micron Technology (NASDAQ:MU). Money has been flowing into the stock already this year, and it recently hit new 20 year highs. With numerous analyst upgrades and a big Q1 earnings report on the way this week, it will be interesting to see just how much upside the stock has in 2021. Let’s take a deeper look at Micron below and discuss a few reasons why it might be a good buy at this time.
Powering Digital Devices with Memory Cards
Micron Technology is a leading manufacturer of dynamic random access memory (DRAM) and NAND flash memory cards. These chips power devices like personal computers, network servers, mobile phones, and other consumer electronics products. DRAM allows devices to store and receive data at high-speeds while in operation, while NAND flash cards are used for mass storage and are starting to replace hard disk drives. The company also has been focused on diversifying its product portfolio so that it will be less reliant on DRAM sales, which make up roughly 2/3 of the company’s revenue.
Micron ranks among the top five suppliers of memory chips in the world and the fact that the company has developed a solid manufacturing process is a huge plus. When it comes to manufacturing memory chips, companies must invest heavy capital in new facilities and equipment to keep up with technological advances. This is another plus with Micron, as the company has entered several joint ventures to share the costs of building and operating these expensive facilities.
Factors Working in its Favor
While the memory chip market can be volatile and highly competitive, enough things are working in Micron’s favor to warrant investors’ consideration at this time. First, the rollout of 5G networks should keep the demand for the latest mobile phones high, which bodes well for Micron’s sales. The company’s LPDDR5 memory allows 5G smartphones to process data at peak speeds, which is crucial since 5G data networks require higher levels of efficiency to function well.
There’s also the fact that Micron will benefit from ongoing cloud spending from major enterprises, as the company’s NAND chips help to store information in computers and data centers. Keep in mind that federal and state stimulus should help to expand the country’s internet infrastructure since consumers are likely using some of that money for hardware and software upgrades. Finally, a wild card with Micron has to do with president-elect Joe Biden’s stance on China. Huawei is one of Micron’s largest customers, which means that less stringent trade restrictions under the Biden administration could be a big positive for the company.
Micron’s sales are very sensitive to industry supply and demand conditions, but the good news is that the demand for its products has received a boost in recent times. Investors should be very encouraged by the fact that Micron issued increased guidance back in early December. The company is anticipating Q1 2021 revenue to come in between $5.7-5.75 billion, which would represent a year-over-year increase of roughly 11%. The company also anticipates diluted earnings per share in Q1 of $0.65, which is a jump of 35% year-over-year.
Many investors will be keeping an eye out for Micron’s gross margin figure, which has historically been very volatile thanks to the cyclical nature of its business. Gross margins are expected to increase in Q1 due to cost reductions and higher volume, which is a big positive for long-term shareholders. Micron reports its Q1 earnings this week on January 7th, so keep an eye on how the stock reacts after the release.
We know that the market demand for semiconductors is here to stay, which means that a company like Micron Technology finds itself in the perfect situation to capitalize. With the stock hitting levels that haven’t been seen in decades, continuous analyst upgrades, and increased guidance, this is a stock that has a lot of things going right for it at this time.Leave a comment