Micron: The Perfect Bonanza Might Be Just Around The Corner

Jul. 16, 2018 9:26 PM ETMicron Technology, Inc. (MU)84 Comments
Nelson Alves profile picture
Nelson Alves


  • Memory and storage hardware producers have always been perceived as risky assets.
  • The history of boom and bust in the industry seems to sustain this thesis.
  • However, Micron seems to be leaving part of its cyclicality behind, even if investors don't seem to acknowledge it yet.

Micron (NASDAQ:MU) is consistently perceived as a risky stock, vulnerable to its condition of price-taker in a very aggressive industry where price cuts are the norm. However, during the last couple of quarters, the company has kept beating its numbers and consistently raising its outlook. How does one interpret this?

Data analytics, data mining and A&I are driving a trend towards huge memory consumption. This is a great opportunity for Micron. Forecasts suggest that data centers capex will increase 2.6 times until 2021.

Graph 1: Cloud data center capex forecast 2017-2021

(Source: Micron)

As you can see, the density of memory is also increasing, with AI workloads demanding 6 times more DRAM and 2 times more SSD when compared with a standard cloud server. On the supply side, it is getting increasingly harder to grow due to the complexity of the technology, meaning that producers will need more clean room space.

Graph 2: NAND Bit Supply growth

(Source: Micron)

The trends are a-changing

A couple of years ago, overcapacity was the norm in the semiconductor industry. However, both semiconductor technology and new technology in other fields are changing the old ways. Artificial intelligence is driving the demand for more processing capacity and memory density. Cloud applications are becoming more and more adopted. Companies are keener to rent a server on the web instead of buying expensive powerful hardware that they will only use a fraction of the time.

At the same time, flash NAND and 3D NAND are unleashing new possibilities concerning the density of memory. As these two trends are meeting, a new world is emerging at a fast pace. Small companies are getting a shot at AI through rented servers, but as they grow, they are also demanding more data. At the beginning of the century, cars were responsible for a negligible amount of data. In the

This article was written by

Nelson Alves profile picture
Nelson Alves is a professional investor, established in Portugal. He started his career in 2007 right at the start of the biggest financial crisis since 1929. Until 2011 he worked in several trading desks. His main influences are Philip Fisher and Warren Buffet. Nelson is looking to help small investors on the task of preserving and increasing their savings’ funds. Being a thoroughly student of several investment approaches, he believes that the equity markets should be on service of both small and institutional investors, and therefore every citizen should be able to reclaim his fair share of the long-term growing prosperity around the world. http://pt.linkedin.com/in/nelsonmjalves/

Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in MU over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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