Memory and storage chip giant Micron Technology (NYSE: NASDAQ:MU) stock has been selling off with the rest of the chip stocks as investors flee growth for value stocks amidst the global chip shortage. The maker of DRAM, NAND, and NOR memory chips was a pandemic benefactor and is set to gain from the re-openings, but the supply shortage is impacting sentiment. The global demand for bandwidth and storage is a constant driving force that should continue to drive growth as evidenced by the 30% YoY topline in its most recent quarter. Despite the semiconductor supply glut, worldwide semiconductor sales are still expected to grow 13% in 2021 compared to 10.8% in 2020, according to IDC released on May 6, 2021. Robust demand across consumer, computing, 5G and automotive sectors will be the key drivers. The sell-off in the NASDAQ 100 may provide prudent investors with opportunistic pullback levels to consider scaling into a position in this core play on the demand for memory and storage capacity.
Q2 FY 2021 Earnings Release
On March 31, 2021, Micro released its fiscal second-quarter 2021 results for the quarter ending March 4, 2021. The Company reported an earnings-per-share (EPS) profit of $0.98 excluding non-recurring items versus consensus analyst estimates for a profit of $0.95, a $0.03 beat. Revenues grew 30% year-over-year (YoY) to $6.2 billion matching analyst estimates for $6.2 billion.
“Our technology leadership in both DRAM and NAND places Micron in an excellent position to capitalize on the secular demand driven by AI and 5G, and to deliver new levels of user experience and innovation across the data center and intelligent edge.”, as per Micro Technology CEO, Sanjay Mehrotra. The Company has decided to exit 3D XPoint development in favor of other memory solutions that utilize Compute Express Link or CXL as the Company looks to release new memory products.
Raised Q3 2021 Guidance
Micron raised its Q3 fiscal 2021 guidance with EPS coming in between $1.55 to $1.69 versus $1.33 consensus analyst estimates. The Company see revenues coming in between $6.9 billion to $7.3 billion versus the $6.86 consensus analyst estimates.
Conference Call Takeaways
CEO Mehrotra set the tone:
“Micron delivered strong FQ2 results above our original projections, driven by solid execution and higher than expected demand across multiple end markets. The DRAM market is in severe shortage and the NAND market is showing signs of stabilization in the near-term… Following last quarter’s introduction of 176-layer NAND into volume productions, in FQ2, we began volume productions on our 1-alpha DRAM node, solidifying our technology leadership in both DRAM and NAND. We are in excellent position to capitalize on the strong demand for memory and storage, driven by artificial intelligence and 5G across the data center, the intelligent edge, and user devices.”
He went on to detail how the Company is doing everything to meet the customer demands despite the component shortages and disruptions at its Taiwan fabs. Micron has been able to mitigate component shortages with the proactive supply chain and inventory management strategies. Despite droughts, earthquakes and power outages, the Company was able to minimize lost output in its Taiwan operations.
Growth Drivers
The 1-alpha DRAM and 176-layer NAND are expected to be the workhorse drivers through fiscal 2022. The Company plans to introduce DDR5 in 2H fiscal 2021. In data center, the AI and data-centric workloads will drive long-term growth as the need for memory and storage increase proportionately. Micron expects robust demand from U.S. hyperscale customers into the 2H fiscal 2021 as Cloud and Enterprise DRAM bit shipments rose sharply sequentially. Remote work and learning trends continue to bolster record PC DRAM bit shipments despite component shortages. Mobile revenues grew 21% sequentially from the continued recovery in smartphone volumes, which should accelerate with 5G momentum already seen in China. CEO Mehrotra summed it up:
“Recovery from the pandemic and pent-up demand are expected to drive strong demand growth in markets such as enterprise, cloud, desktop PCs, mobile, auto and industrial.”
He concluded:
“And finally, the introduction of new CPUs will support more memory channels and higher-density modules, contributing to increases in server memory content across both cloud and enterprise.”
The sell-off in Micron shares appear to be sentiment based and not driven by fundamental metrics, this provides prudent investors with opportunistic pullback entry levels to considering scaling into a position.
MU Opportunistic Pullback Levels
Using the rifle charts on the weekly and daily time frames provides a precision view of the playing field for MU shares. The weekly rifle chart peaked off the 1.618 Fibonacci (fib) level at $96.99 and formed stairstep stochastic mini inverse pups. The monthly market structure high (MSH) sell triggered on the $83.90 breakdown. The weekly 5-period moving average (MA) resistance is falling at $85.69 as it crossed below the 15-period MA at $88.20. The weekly lower Bollinger Bands (BBs) sit at $71.50. The daily rifle charts has been in a downtrend as the falling 5-period MA tests at $79.04. A rejection there triggers a move towards the daily lower BBs at $75.08. The daily stochastic crossed back under the 20-band and needs to cross back up to regain bullish momentum along with the daily market structure low (MSL) buy trigger above $$79.70. Prudent investors can monitor for opportunistic pullback levels at the $75.46 sticky 5s levels, $73.70 fib, $70.58 sticky 5s level, $68.51 fib, $63.52 super fib, and the $60.45 fib. The upside trajectories range from the $85.94 fib up towards the $102.41 fib level.