Any doubts about the health of the memory market have been put to rest by Micron Technology's (MU 1.31%) fiscal 2022 first-quarter results released on Dec. 20.
Shares of the memory specialist shot up 15% following its quarterly report that revealed a sharp increase in revenue and earnings. Additionally, Micron's terrific guidance gave investors confidence that its high growth is here to stay, which is not surprising as the company is on track to take advantage of the long-term boom in memory demand.
Let's look at the numbers from Micron's latest quarterly report and consider why it could turn out to be a hot growth stock in 2022.
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Micron Technology crushed expectations thanks to robust memory demand
Micron's recent Q2 revenue shot up 33% year over year to $7.69 billion. Its earnings jumped to $2.16 per share from just $0.78 per share in the prior-year period. The numbers were ahead of Micron's expectation of $2.10 per share in earnings on $7.65 billion in revenue, thanks to strong demand across several end markets.
For instance, Micron's revenue from the data center segment jumped 70% year over year in the fiscal second quarter due to increasing usage of solid-state drives (SSDs) for cloud computing purposes, as well as an increase in enterprise spending in the information technology (IT) industry. The chipmaker expects the data center segment to grow at a faster pace than the broader memory industry on account of several tailwinds, as management pointed out on the company's latest earnings conference call:
Data center is the largest market for memory and storage, and we expect it to outpace the broader memory and storage market over the next decade. Memory and storage is growing as a portion of server bill of materials (BOM), supported by new and heterogenous computing architectures, the growth of data-intensive workloads and AI, and the ongoing displacement of HDDs by SSDs.
More importantly, Micron's data center customers have qualified its new SSD products for use in their servers, while the growing adoption of DDR5 memory in new server products next year will continue to be another tailwind.
Micron is clocking similarly impressive growth in the mobile market, where the adoption of 5G smartphones is driving higher consumption of both flash memory storage and DRAM (dynamic random-access memory).
Micron's mobile revenue jumped 25% year over year in the first quarter. That's not surprising, as "5G phones feature more than 50% higher DRAM and double the NAND content versus 4G phones," the company said on the earnings call.
This is going to be another secular catalyst for Micron, as sales of 5G smartphones are expected to exceed 700 million units in 2022, up 40% from this year's estimated shipments of 400 million units.
These, however, are not the only catalysts for Micron, as it sees rising demand from the automotive and industrial markets as well. Micron's automotive revenue was up 25% year over year in Q1 as demand for driver-assistance systems and in-vehicle infotainment are driving the need for more memory chips.
Additionally, growing electric vehicle (EV) adoption and the automation of cars will increase Micron's addressable market. The company points out on its earnings conference call:
New EVs are becoming like a data center on wheels, and we are already seeing examples of 2022-model-year EVs supporting level 3 autonomous capability with over 140 GB of DRAM and also examples with over 1 TB of NAND.
As a result of these growth drivers, Micron expects DRAM demand to increase in the mid-to-high teens in 2022, while flash storage demand is expected to jump 30%. What's more, the company anticipates a healthy demand-supply balance in 2022 thanks to lean supplier inventories and "prudent" capital spending by memory manufacturers.
All of this explains why Micron expects its revenue to increase 20% year over year to $7.5 billion this quarter. It expects earnings of $1.95 per share, nearly double the prior-year period's earnings of $0.98 per share. Wall Street was looking for $1.86 per share in profit on $7.27 billion in revenue from Micron.
The stock is still a screaming buy
Micron stock has shot up more than 25% in the past three months, but the stock is still dirt cheap. It trades at just 14 times trailing earnings and 10 times forward earnings. These multiples are way lower than the NASDAQ 100 Index's earnings multiple of 34.7.
Investors looking to add a growth stock to their portfolios for 2022 should take a closer look at Micron, as it is very cheap right now and looks set to deliver more upside in the new year.
