What happened
Shares of Micron Technology (MU -4.61%) rose 13% in the first half of 2021, according to data from S&P Global Market Intelligence. Micron is one of the world's three DRAM manufacturers, and one of only six producers of NAND flash. Both types of memory saw rising prices in the first half of 2021, bringing Micron's stock along with it.
Yet unlike some other less-cyclical semiconductor companies, Micron had been much higher on the year before selling off recently. Has the cycle peaked, or is the recent dip a buying opportunity?
Increased automation drove memory demand in the first half of the year. Image source: Getty Images.
So what
DRAM prices grew in the low single-digits quarter over quarter in the first quarter, grew roughly 20% in the second quarter, and are expected to rise in the mid-single digits in the third quarter. Even NAND flash, which was a more oversupplied market over the past few years, saw prices dip 5% in the first quarter, but they're expected to rise between 5% to 10% in both the second and third quarters.
This recovery in memory pricing, which had been absolutely battered by the U.S.-China trade war and subsequent memory recession, benefited Micron's results. In its recent fiscal third quarter, Micron's revenue surged 36%, with earnings per share shooting up 114%. Even better, Micron forecasts strong sequential growth for the next quarter as well.
Given these results, why did Micron's stock fall recently? Well, those used to severe cycles may think the current surge in demand is as good as things are going to get. Meanwhile, Micron highlighted some extra costs it would take on as it switches to extreme ultraviolet lithography (EUV) technology for its DRAM process, slated to begin in 2024.
Now what
While these two concerns are valid, it's also possible skeptics are underestimating Micron's resilience going forward. The company has been making technology transitions at a faster clip than rivals this year, and demand for memory should remain strong over the next decade, albeit with some uneven bumps along the road.
Meanwhile, at just seven times next year's earnings estimates, with a cash-rich balance sheet and a commitment to deploy at least 50% of free cash flow on share repurchases, Micron appears cheap enough to buy, even if earnings peak next year.
