To The Moon

Micron Technology($Micron Technology(MU)$ )has recently been on a winning streak. In its fiscal 2021, its revenues grew by 29% to $27.7 billion and it more than doubled its net profit to $5.9 billion. It sustained that solid growth in the first quarter of its fiscal 2022, when GAAP revenue and net profit improved by 33% and 187%, respectively.

While impressive, those results are likely just the beginning of a long-term expansion cycle for Micron that will be powered by some of this decade's biggest trends.

The rapid growth of data centers

Data centers are by far the largest users of memory produced by companies like Micron. Thanks to the growing use of artificial intelligence (AI) systems, the Internet of Things, and smart cars, among other things, the demand for data centers has expanded rapidly. This trend is unlikely to slow down anytime soon as we move into the 5G era, which will allow for even higher data consumption and commensurately greater storage requirements.

The need for high-speed computing to carry AI workloads, the movement toward heterogeneous computing systems, and the displacement of hard disk drives by solid-state drives are a few other factors driving higher demand for memory and data storage. The tailwinds are evident in the fact that Micron's data center revenue grew by 70% year-over-year in its fiscal 2022 first quarter, which ended Dec. 2.

In his opening remarks on the fiscal Q1earnings call, President and CEO Sanjay Mehrotra said that the growth in memory and storage for data centers will outpace the general market over the next decade. If he's right, the tailwind propelling Micron will last for years, if not decades.

Mobile phones upgrade from 4G to 5G

Another major shift that will benefit Micron is the movement from 4G to5Gsmartphones. 5G networks offer significantly faster download speeds, so users with 5G mobile devices will naturally use them to do more and to run content-heavy apps more often. But network speed alone will not do the job. Those smartphones will also need to have the built-in hardware to handle those enhanced workloads.

That brings us to the main point: 5G smartphones will need a lot of memory and data storage to run smoothly. According to Mehrotra, recent 5G smartphones have 50% more DRAM (dynamic random-access memory) and twice the amount of NAND (non-volatile flash memory) compared to 4G phones. Both should rise even further as manufacturers continue to make ever more powerful phones.

The transition from 4G to 5G phones has already profited the tech company. Micron reported a 27% increase in revenue to $1.9 billion from its mobile phone division in its latest quarter. This growth trend could continue for a long time as people gradually upgrade their devices.

Electric cars, smart cars, and more

No overview of the memory and storage market would be complete without a discussion of the evolution of our cars into the smart vehicles of the near future.

As discussed above, the widespread adoption of 5G phones will drastically increase the world's memory and storage needs. But those increases pale in comparison to the memory and storage requirements our smart cars will have. Presently, electric vehicles with Level 3 autonomous driving systems installed require more than 140 gigabytes (GB) of DRAM memory and 1 terabyte (TB) of NAND storage. By comparison, an iPhone 13 uses 4 GB of RAM and a maximum of 512 GB of storage. As we move closer toward Level 5 autonomous driving systems,automakers' demand for memory and storage will continue to explode.

So far, Micron has gotten around 10% of its revenue from its automotive and industrial business. That percentage will rise. On the earnings call, Mehrotra said management expects "automotive and industrial to be the fastest-growing memory and storage markets over the next decade." All Micron's shareholders will have to do is buckle up and enjoy the ride.

Source: Nasdaq