micron technology (Mu -4.83%) hasn’t given shareholders much reason to smile this year. Chip makers’ stocks fell more than 40% due to a sharp decline in technology stocks and weak demand for memory chips in particular.
There may be worse news ahead. Micron’s near-term guidance points to a significant decline in earnings and earnings. The price of memory chips is falling due to oversupply due to the sharp drop in sales of smartphones and personal computers in 2022.
Analysts expect Micron’s revenue and bottom line to shrink 19% and 52%, respectively, to $25 billion and $3.92 per share in fiscal 2023 (which is still early). The outlook for the next five years is also bleak. Analysts estimate Micron’s earnings will remain stagnant. But can memory specialists wow analysts and exceed their expectations?
Micron Technology is optimistic about the future of the memory market
Although demand for memory is currently sluggish due to the slump in the PC and smartphone markets, several factors could pull us out of this recession in the long term.
At Micron’s 2022 Investor Day in May, the chipmaker pointed to a number of industries where demand for memory will increase. For example, the data center memory market was reported to be worth $50 billion last year. Micron expects its DRAM (Dynamic Random Access Memory) demand in data centers to record a compound annual growth rate (CAGR) of 28% through 2025 due to increased computing power.
Similarly, data center demand for NAND flash memory is expected to grow at a compound annual rate of 33% through 2025. Additionally, Micron projects his CAGR of the total addressable market for DRAM and NAND flash chips in data centers to be 14% by 2030.
Similar trends are expected in the smartphone, PC, industrial, and automotive markets. Demand for DRAM in smartphones, for example, could grow at a compound annual rate of 14% through 2025, according to Micron. Demand for NAND in smartphones is expected to grow at an average annual rate of 33% over the same period.
It’s no surprise why Micron is expecting such healthy growth in memory demand from the smartphone market – the increasing adoption of 5G devices. Micron estimates that the average NAND memory capacity per smartphone, which was 120 gigabytes (GB) last year, could reach 280 GB by 2025. Similarly, the average amount of DRAM per smartphone will grow from 5 GB to 9 GB in 2021. By 2025, 80% of smartphones are expected to support his 5G. Last year it was just 40%.
The automotive market will be another area where memory growth will be watched. The automotive memory market is expected to grow 28% annually through 2025 due to increasing connectivity levels in vehicles, evolving infotainment systems, and increasing use of autonomous driving features such as advanced driver assistance systems (ADAS).
Micron is poised to take advantage of this long-term growth in memory demand with an aggressive investment plan. The company recently announced that he will invest $15 billion over the next decade to build a new memory manufacturing plant in Boise, Idaho. Overall, Micron aims to spend $40 billion to build out its US manufacturing facilities over the next few years to meet long-term growth in memory demand.
These moves should help Micron improve its position in the memory market and regain momentum. The company reportedly dominated his quarter of the DRAM market in the first quarter of 2022, up from his 21% share in the first quarter of 2017.
What Should Investors Do?
The memory market is currently oversupplied and Micron’s stock may continue to be under pressure until end-market conditions improve. Both the top and bottom are expected to shrink significantly in FY2023, but improvement is expected from FY2024 onwards.
YCharts MU revenue forecast for next year data
Therefore, investors should pay attention to the improvement of the memory market and start accumulating this technology stock once the supply and demand situation improves. Micron’s long-term outlook points to the potential for impressive upside over the next five years.
Harsh Chauhan has no positions in any of the mentioned stocks. The Motley Fool has no positions in any of the companies mentioned. The Motley Fool’s U.S. headquarters has a disclosure policy.
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