Shares of Micron Technology (NASDAQ:MU) have climbed 40% in 2017, as its quarterly results have consistently outpaced analyst expectations, thanks to the favorable pricing of dynamic random access memory (DRAM) and NAND chips. Memory-chip supply is still falling slightly short of demand, pushing prices higher and setting Micron up for a terrific performance when it releases its fiscal third-quarter earnings on June 29.

Here's why investors can expect another beat and raise from Micron.

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Image source: Micron Technology.

Micron is set to meet lofty expectations

Wall Street expects Micron's revenue to jump an impressive 86% from the prior-year period to $5.4 billion, which should boost its earnings to $1.50 per share, all the way from a loss of $0.08 last year. Analysts were originally expecting the memory specialist's revenue to increase 62% year over year, but favorable market dynamics helped Micron post a stellar outlook, encouraging analysts to raise their estimates.

The price of 4GB DDR4 memory modules increased 12.5% during the second quarter, as memory makers such as Samsung faced yield issues while transitioning to the more advanced 18nm platform. Samsung is seeing a high rate of defects in its new PC DRAM products. Though Micron is also experiencing some difficulties itself, it is maintaining sufficient volume.

The third big player in the DRAM industry, SK Hynix, isn't moving to the 18nm platform yet, indicating that supply will continue to remain an issue as original equipment manufacturers increasingly adopt the newer technology. At the same time, the increasing adoption of notebooks is going to push up DRAM demand, which will lead to better pricing until supply normalizes.

Therefore, favorable DRAM pricing and strong demand will substantially boost Micron's revenue during the third quarter, as the company gets almost two-thirds of its revenue from this business, while cost control will enhance the bottom line.

There's still a lot of room for improvement, given the company's move to the smaller 18nm manufacturing node. Investment research firm Susquehanna forecasts a 20% DRAM cost reduction thanks to this move, so it isn't surprising that Micron is expecting such a big jump in its bottom line.

What next?

Micron's momentum isn't going to slow down, as higher DRAM prices could prevail for the rest of the year, caused by higher demand from the mobile and server markets. Average memory content of smartphones this year is projected to jump 33%, while the DRAM content in each server could increase  18% in 2017 over 2016 levels.

But at the same time, DRAM supply won't grow fast enough to meet the rising demand. According to DRAMeXchange, global DRAM supply will grow just 19% in 2017, compared with the 20%-30% average seen in the past few years, pointing toward a stronger pricing environment in the second half of the year as well.

Not surprisingly, analysts are looking for strong guidance from Micron once again, expecting revenue from the company's fiscal fourth quarter, which ends in August, to grow a whopping 74% year over year. The massive top-line growth could push the company's earnings to $1.55 per share, compared with a loss of $0.05 per share in the year-ago quarter.

The memory industry's demand-supply dynamics will favor Micron in the long run. IC Insights forecasts that average selling prices will continue improving for the next four years on the back of higher demand, making Micron a smart bet, as it should continue enjoying favorable market dynamics.