Micron is a leader in data storage solutions – an area that needs to keep up with a world of ever-increasing data flows. I also think that memory is an integral part of Artificial Intelligence (Autonomous Driving, Cloud Computing, Mobile Machine Learning, etc.)
This can be bought at a very low 5.4x multiple of forward net profit currently as some market participants have been expecting a decline in DRAM memory prices and a peak in profits this year. However this has not been occurring and there are multiple areas for Microns profits to grow over the next few years.
June Taiwan notebook shipments were above expectations, increasing +17% month-on-month, +7% quarter on quarter, continuing the strength seen in the PC end market since the second half of last year. Micron has exposure to the PC market of around 25%. Strong server and mobile demand continue.
DRAM prices have also remained strong and spot prices continue to increase, driven by the strong PC demand and limited supply growth. There appears to be tight supply throughout this year for DRAM and a lack of major capacity expansion. DRAM spot prices have started to increase in July 2017, nearly matching the high of February 2017. DRAM prices would appear to be robust because of anticipated solid demand while capex for DRAM capacity expansion in the industry appears to be flat, after falling 30% in 2016.
Combine these factors with Microns on-going margin improvements and very low valuation (5.4x P/E) and it creates a very attractive investment proposition. Micron expects its DRAM costs to decline by ~15-20% each year. During the last DRAM upturn, Micron shares traded at an average of around 9x P/E.
Also look out for new innovative solutions from Micron to help meet the demands in Autonomous Driving, Cloud Computing and Mobile Machine Learning.
Disclosure: I am/we are long MU.