Micronic Technology (NASDAQ: MU) the stock fell more than 3.5% after its fiscal 2021 fourth quarter earnings report (released Sept. 28) failed to thrill investors. The memory specialist’s weaker-than-expected forecast was enough for investors worried that a drop in memory prices was imminent to hit the panic button – an event that could derail Micron’s exceptional growth.

However, savvy investors should view the recent drop in Micron shares as a buying opportunity. Let’s see why.

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Micron Technology investors should focus on the big picture

Micron ended the fourth quarter of fiscal 2021 with adjusted earnings of $ 2.42 per share on revenue of $ 8.27 billion. The numbers were a big improvement over last year’s earnings of $ 1.08 per share and revenues of $ 6.06 billion and topped Wall Street’s estimate of $ 2.33 per share in earnings. on $ 8.2 billion in revenue.

Micron benefited from a robust memory pricing environment during the quarter as evidenced by its non-GAAP gross margin of 47.9% compared to 34.9% in the prior year period . Its adjusted operating margin increased 16 percentage points year-over-year to 37.1% in the quarter.

Micron expects revenue of $ 7.65 billion this quarter, along with an adjusted gross margin of 47% and non-GAAP earnings of $ 2.10 per share. The chipmaker had generated profit of $ 0.78 per share in the prior year period on revenue of $ 5.77 billion, while the non-GAAP gross margin s’ amounted to 30.9%. As a result, Micron’s sales are set to increase by almost 33% year-on-year. Additionally, margins would rise significantly again and drive profits up sharply, indicating that the solid memory pricing environment is here to stay.

Wall Street, however, expected earnings of $ 2.53 per share on revenue of $ 8.54 billion. As a result, Micron’s forecasts far exceeded expectations and investors quickly took the plunge. But then, it should be noted that the reason Micron’s advice was lighter than expected is temporary in nature. CEO Sanjay Mehrotra explained on the results conference call that:

In the short term, our deliveries of FQ1 bits will decrease modestly in both DRAM (dynamic random access memory) and NAND compared to very high levels in FQ4. Some PC customers are adjusting their memory and storage purchases due to the shortage of non-memory components needed to complete PC versions. We expect this adjustment at our PC customers to be largely resolved in the coming months. We are also seeing constraints in our supply chain for some IC components which will limit our bit deliveries somewhat in the short term.

Thus, Micron’s prospects are limited by a shortage of components among personal computer (PC) manufacturers, and not by weak demand for memory products. This is not surprising as the PC market is expected to remain healthy in the future. Market research firm IDC estimates that the demand for desktops, laptops and workstations could grow at an annual rate of 3.2% through 2025. As a result, the demand for PCs DRAM could rebound once short-term supply constraints are taken into account.

In fact, Micron expects shipments to start increasing in the second half of fiscal 2022. The company is forecasting record revenues for the year as well as “strong profitability.” So it may not be long before the stock starts to soar again as the PC market gets back on track and the other catalysts Micron sits on ensure continued growth in its bottom line.

Close-up view of a RAM key.

Image source: Getty Images.

These markets could lead to high memory consumption

The PC market represents a small part of the DRAM market. Memory industry research firm TrendForce reported in December 2020 that PCs accounted for 13% of the total DRAM market, while the server and mobile markets accounted for 75% of shipments. The good part is that the server and mobile DRAM markets generate a high demand for memory.

Micron points out that its data center revenue improved in the last quarter thanks to “centuries-old drivers of cloud demand and a resurgence in corporate IT investments linked to improved economic growth.” This is a trend that is expected to continue due to the increase in the number of data centers and increased server workloads. For example, the number of hyperscale data centers is expected to double by 2025, according to SK Hynix.

A hyperscale data center is much larger than a typical data center. It can contain hundreds of thousands of physical servers and millions of virtual servers, and their electrical power needs reach several megawatts. As a result, the increased deployment of hyperscale data centers is triggering a significantly higher demand for DRAM and NAND flash memory. Meanwhile, the use of DRAM and NAND flash memory in smartphones is increasing at a rapid rate thanks to the higher memory requirements associated with the use of 5G wireless networks.

Counterpoint Research estimates that smartphone NAND flash consumption could triple by 2025 compared to 2021. Likewise, the average DRAM capacity of smartphones is increasing in the 5G era. Given that annual 5G smartphone shipments could reach 1 billion units by 2025, up from around 269 million units last year, this market looks set to generate strong demand for long-term memory.

Unsurprisingly, the DRAM market is expected to experience annual growth of nearly 29% over the next two years. Demand for NAND flash is expected to grow at an annual rate of over 11% over the next five years, according to a third-party estimate.

It’s time to buy stocks

The above discussion indicates that Micron should continue to witness healthy memory demand in the future. That’s why the company is optimistic about its outlook for the new fiscal year, as analysts forecast annual profit growth of more than 20% for the next five years.

All of this makes Micron Technology an attractive growth stock to buy right now, as it is trading at just 14x rolling earnings, which is a big cut from the stock market. S&P 500the multiple of 30 of the earnings of.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.