4. Micron Technology, Inc. (NASDAQ:MU)
Number of Hedge Fund Holders: 78
Micron Technology, Inc. (NASDAQ:MU) is an Idaho-based semiconductor company providing memory and storage solutions. The company operates in 17 countries and has a headcount of over 40,000 employees.
On July 1, Harlan Sur and his team at JPMorgan lowered the target price on Micron Technology, Inc. (NASDAQ:MU) from $96 to $80 and reiterated an Overweight rating on the stock. The analysts shed light on the demand for semiconductor equipment from the cloud computing industry. The team at the investment firm believes that the capital expenditure of cloud data centers would increase by 25% YoY as opposed to a prior estimate of 28% YoY. However, the team expects the pace of growth to slow down to the mid-teens percentage in 2023. Micron Technology, Inc. (NASDAQ:MU) is down over 35% YTD, and the analyst believes that the company is trading “at or near a trough valuation.”
Here’s what Hazelton Capital Partners said about Micron Technology, Inc. (NASDAQ:MU) in its Q3 2021 investor letter:
“It’s hard to explain how shares of Micron Technology, manufacture of DRAM and NAND semiconductor chips, can fall during a global chip shortage. In most industries, focusing on demand can give you a clear insight into what lays ahead for a company. Today, the memory and storage chip industry is no different. However, in the past, companies focused on market share led to the reckless build out of chip fabrication plants (FABs), oversupply, falling average selling prices (ASPs) of memory and storage chips, lower margins, and declining cash flows. As the industry consolidated – there are now just 3 major producers of DRAM and 5 on the NAND side – rational behavior among the key players began to take hold as competitors began focusing more on R&D. Currently, chip pricing remains cyclical although less so than in the past and that cyclicality has a long-term upward bias. The ongoing transition to newer and more robust platforms (3D 176-layer NAND & 1-Alpha node DRAM) has provided the memory and storage chip industry with improved supply capacity under its current manufacturing footprint, ultimately pressuring ASPs. Over the past three years, as most of the large platform conversions have already taken place, being able to add more bits per wafer has reached a saturation point. With no major FAB build outs planned in the near-term by competitors Samsung or SK Hynix, constrained supply and flattening cost curves should lead to durable and upward sloping ASPs once the recent volatility from the chip shortage subsides.
Currently Micron Technology trades at just 8x 2022 estimate earnings. MU is expecting growth in both DRAM and NAND not just from the supply of more chips to data centers, artificial intelligence, the auto sector, and mobile devices, but also from greater demand for gigabyte capacity per unit within those segments. With a healthy balance sheet, improving return on invested capital, and expanding cash flows, not only should Micron benefit from improving future earnings but its multiple should also reflect the transition to a flattening cost curve.”
