The explosive growth in memory prices over the past couple of years has taken Micron’s (NASDAQ:MU) business to the next level. The chip giant has enjoyed terrific top- and bottom-line momentum thanks to booming memory demand that has outpaced supply.
DRAM has been the biggest driver of Micron’s success, making up 70% of the company’s overall revenue. RBC’s top analyst Amit Daryanani estimates servers now account for ~25% of total DRAM bits consumed, compared to 15-20% a year ago.
Daryanani wrote, “We think this strong growth in server DRAM consumption is driven primarily by strong hyperscale spend and also supported by strong IT spend environment. MU is a major beneficiary of this trend with server DRAM accounting for ~29% of DRAM revenues in 1H18 and the mix is expected to improve as cloud tailwinds remain strong. RBC cloud capex tracker points to 40%+ growth in capex at hyperscalers in 2018. Second, on the PC side, even though units remain flattish we could see high single digit content growth despite high DRAM prices aided by strong gaming trends. Third, on the mobile subsegment, we anticipate low single digit growth in units but continued growth in content (~10%). Finally, consumer/graphics DRAM trends should also sustain high teens bit growth this year. Overall, coupled with limited supply increases in near term, these demand tailwinds imply that MU is positioned to deliver strong DRAM results.”
“We believe MU remains one of the more attractive names in our coverage as we see potential for sustained beats/raises helped by a consistent buyback program as we get into FY19,” the analyst concluded.
As such, Daryanani reiterates an Outperform rating on Micron stock, with a price target of $83, which implies an upside of 59% from current levels.
Daryanani is one of Micron’s biggest bulls, and he is also one of the top analysts on Wall Street. According to TipRanks.com, which measures analysts’ and bloggers’ success rate based on how their calls perform, Daryanani has a yearly average return of 25.5% and a 83% success rate. Daryanani has a -4.8% average return when recommending MU, and is ranked #18 out of 4850 analysts.