Analyst Note| Abhinav Davuluri, CFA |
Micron reported solid fiscal second-quarter results, with revenue exceeding the midpoint of its revised guidance thanks to broad-based strength. CEO Sanjay Mehrotra believes the DRAM market is in severe shortage whereas the NAND market is stabilizing. We anticipate robust pricing in DRAM as demand exceeds supply due to disciplined industry capital expenditures and a healthy appetite for greater memory content ranging from servers to 5G smartphones. In contrast, management sees the NAND market as more challenging in the near term due to elevated levels of industry capital expenditures, though overall bit demand in 2021 is expected to be up to the low- to mid-30% range from Micron’s prior expectation of 30%. We believe Micron is well-positioned to enjoy 25% revenue growth in fiscal 2021, thanks to increased memory content associated with artificial intelligence, cloud, 5G, and new game consoles. Consequently, we are raising our fair value estimate to $80 per share from $75 for no-moat Micron. With shares surpassing $90 during after-hours trading, we recommend prospective investors wait for a wider margin of safety.