micron technology (NASDAQ:MU) surprised investors last week with outstanding financial results for the second quarter of fiscal 2024, reporting strong sales growth and a surprise profit, which sent the memory specialist's stock soaring.
The chipmaker benefited from a surge in demand for memory chips. As a result, revenue increased significantly to his $5.8 billion, up 58% year over year. Micron expects strong sales growth this quarter, up 76% year over year, due to increased demand for memory chips from artificial intelligence (AI) servers, smartphones and personal computers (PCs) .
The memory industry has recently seen a significant turnaround as demand for consumer electronics gets back on track, while AI creates a need for advanced memory chips known as high-bandwidth memory (HBM). Micron management said in its latest earnings call that while 2024 HBM capacity is sold out, “the overwhelming majority of 2025 supply has already been allocated.”
this is good news ram research (NASDAQ:LRCX)is a semiconductor equipment manufacturer that derives most of its revenue from selling products to memory manufacturers such as Micron. Let's take a look at why Micron's latest financial results show investors would be wise to buy Lam Research stock now.
Lam Research is on the verge of a steady turnaround
In the most recent quarter, Lam Research generated 48% of its revenue from selling semiconductor manufacturing equipment to memory manufacturers. This explains why the company has performed poorly in recent quarters. Oversupply in the memory market has forced Micron and other companies to suspend production capacity expansion, and Lam's business performance has declined.
Analysts expect the company to end the current fiscal year with sales down 22% to $13.6 billion. Additionally, earnings are expected to decline from $34.16 to $26.76 per share. However, as the following graph shows, Lam Research's sales and profits are likely to soar in its next fiscal year, which starts at the end of June 2024.
Micron's latest results and management commentary illustrate why Lam's fortunes are likely to improve. Memory manufacturers need to increase the supply of HBM to meet the growing demand from AI servers. The good thing is that Mr. Lam is already seeing strong orders for his HBM equipment. “In 2024, we expect HBM-related DRAM and packaging shipments to more than triple year-over-year…” CEO Tim Archer said on the company's January conference call with analysts. he pointed out.
It's also worth noting that the overall memory market is expected to rise significantly in 2024. gartner, memory industry revenue could rise 66% this year, following a 39% decline in 2023. More importantly, the growing adoption of AI will lead to a steady increase in long-term memory demand.
According to Micron, AI-enabled PCs can have 40% to 80% more dynamic random access memory (DRAM) content compared to traditional PCs. Meanwhile, the company predicts that AI-enabled smartphones will have “50% to 100% more DRAM content than today's non-AI flagship smartphones.”
Meanwhile, HBM's demand is expected to more than double in 2024, with revenue expected to reach $14 billion, up from $5.5 billion last year. Even better, the HBM market could generate nearly $20 billion in revenue next year. All of this points to the need for memory manufacturers to increase production capacity, and a closer look at the industry shows that this is exactly what is happening.
Samsung, for example, expects to increase HBM production by 2.5 times in 2024 and double next year. Similarly, SK Hynix expects to increase its capital expenditures this year to support increased HBM demand. Therefore, the end market situation will be favorable for Lam Research.
It's easy to buy stocks now
Lam Research's forward P/E ratio is currently 27 times.it's a small discount NASDAQ-100The average multiple for is 28 (using the index as a proxy for tech stocks). If Lam Research hits the expected $46 in earnings and trades at a P/E ratio of 28, the stock would be valued at $1,288, a 33% upside from its current price.
But don't be surprised if the stock delivers even bigger gains, as the market could reward it with higher earnings multiples thanks to its AI-powered growth. So investors should consider buying this semiconductor stock before it skyrockets.
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Harsh Chauhan has no position in any stocks mentioned. The Motley Fool owns a position in and recommends Lam Research. The Motley Fool recommends his Gartner. The Motley Fool has a disclosure policy.
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