2024 is shaping up to be a solid year for the global semiconductor industry, driven by multiple catalysts. These include growing demand for chips that can manage artificial intelligence (AI) workloads, a reversal in the fortunes of the smartphone market and a recovery in the personal computer (PC) market.
These factors explain why global semiconductor industry sales are expected to rise 16% to $611.2 billion by 2024, according to the World Semiconductor Trade Statistics (WSTS). This indicates a nice turnaround compared to last year, when semiconductor industry sales fell by 8%. Better yet, the semiconductor sector is expected to continue growing into 2025, with WSTS projecting a 12.5% increase in industry revenues to $687.4 billion next year.
More specifically, WSTS predicts a whopping 25% increase in memory market revenue by 2025 to $204.3 billion. It turns out that memory is also expected to be the fastest growing semiconductor segment next year, after an estimated 77% increase in the segment’s revenue by 2024.
There’s one company that could help investors tap into this fast-growing niche of the semiconductor market next year: Micron technology(NASDAQ:MU). Let’s take a look at the reasons why buying this semiconductor stock could be a smart move right now.
WSTS isn’t the only forecaster expecting the memory market to rise next year. Market research firm TrendForce estimates that sales of dynamic random-access memory (DRAM) could grow 51% by 2025, while the NAND flash storage market could see 29% growth. Both markets are expected to reach record highs next year.
Growth in these memory markets will be driven by a combination of strong demand and improved pricing. TrendForce predicts a 35% year-over-year increase in DRAM prices next year, driven by increasing demand for high-bandwidth memory (HBM) used in AI processors, as well as the growth of DRAM deployed in servers. Meanwhile, growing demand for enterprise-level solid-state drives (SSDs) and growth in smartphone storage will have a tailwind on the NAND flash market.
These positive trends explain why Micron will start the new fiscal year well. The company’s revenue in fiscal 2024 (which ended August 29) rose 61% year over year to $25.1 billion. The company posted non-GAAP (generally accepted accounting principles) earnings of $1.30 per share, compared to a loss of $4.45 per share in fiscal 2023, driven by a big jump in operating margin due to recovering memory prices .
More importantly, Micron expects revenue of $8.7 billion for the first quarter of 2025, at the midpoint of expectations. That would be a jump of 84% compared to the same quarter last year. The memory specialist has forecast non-GAAP earnings of $1.74 per share for the current quarter, significantly higher than the loss of $0.95 per share in the same quarter last year.
The good thing about this is that top and bottom line results are expected to increase substantially in both the 2025 and 2026 financial years (see chart below).
MU revenue estimates for the current fiscal year
It should come as no surprise that Micron is seeing such impressive growth thanks to the good health of the memory market. However, there is a good chance that the figures will exceed analyst expectations.
Micron management noted during its latest earnings conference call that it is “making investments to support artificial intelligence (AI)-driven demand, and our manufacturing network is well positioned to capitalize on these opportunities.” The company has targeted capital expenditure of $3.5 billion for the first quarter of fiscal 2025, which would be a big jump from the $1.7 billion capital expenditure it reported in the year-ago period.
Micron is doing the right thing by increasing its capital expenditures as the company says it has sold out its entire HBM production capacity for 2024 and 2025. The opportunity in the HBM market is expected to grow from $4 billion in 2023 to $25 billion next year. years, according to Micron’s estimates. Thus, an increase in capital expenditures should allow Micron to strengthen its production capacity and meet more demand, which could lead to stronger-than-expected performance from the company.
Micron shares have been subject to some volatility this year, but have still posted a respectable 30% gain, compared to PHLX semiconductor sector index increase of 25%. However, the stock has gained impressive momentum since reporting its quarterly results on September 25. There is a good chance that it will be able to continue this bull run in 2025 and beyond, thanks to favorable dynamics in the memory market. as discussed.
We’ve already seen from the chart that Micron’s earnings could reach $8.91 per share in the current fiscal year, before rising to $12.80 per share in fiscal year 2026. Assuming that after a few years, Micron generates annual earnings of $12.80 per share and trades 30 times future earnings at that point, in line with Nasdaq-100 the future earnings multiple of the index (using the index as a benchmark for technology stocks), the stock price could reach $384.
That would be a big jump from Micron’s current share price, which is around $109, suggesting this chip stock could deliver excellent profits over the next two years. Considering that Micron currently trades at just 12.5 times earnings, investors are getting a good deal on this tech stock, which is expected to skyrocket in the future.
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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
Semiconductor sales could continue to rise through 2025: 1 top stock to buy on hand before that happens was originally published by The Motley Fool
