Charts, just like looks, can be deceiving. Since bottoming out on March 20 during COVID-19’s peak destruction of the market, shares of chipmaker Micron (MU) have appreciated by 43%. You would think those are some excellent returns but dig a little deeper and you find Micron has underperformed. Compared to the SOX (the Philadelphia SE Semiconductor Index) – the sector’s barometer for overall performance – Micron is down by 18% in the period.
However, Needham analyst Rajvindra Gill doesn’t expect Micron to underperform for long. Over the next few years, several tailwinds associated with the ramping up of 5G networks should provide a boost for the memory chip specialist.
One of these concerns China’s 5G base station deployments. During 2020 and 2021, China is expected to establish 600,000 base stations, but peak deployments will occur further down the line. During 2022 and 2023, Gill expects 1.35 million base stations to be deployed each year.
Why does this benefit Micron? According to Gill’s checks, these units will bring with them a significant increase in memory consumption and therefore a need for DRAM (memory), which Micron will provide.
But that only tells half the story, and what Gill considers the smaller half of Micron’s 5G opportunity. The smartphone 5G cycle is heating up and as a provider of both DRAM and NAND (storage), Micron stands to gain.
As the 5-star analyst said, “We continue to view 5G handsets as the area of 5G where MU will see the biggest benefit. We expect the transition to 5G to drive significant growth in NAND and DRAM content in smartphones, with the biggest content growth in low-to-mid range handsets.”
With the 5G cycle kicking off this year, Gill expects “strong unit growth” in 2021, with further growth each year, all the way through to 2024. The trend is already gathering speed as demand for 5G units is outstripping consumers’ demand for other phones.
“For instance,” Gill noted “According to recent data, 40% of mobile phones sold in China in April were 5G phones. We expect 200-250MM 5G handsets in 2020 and ~450MM 5G handsets in 2021.”
Gill’s confidence in Micron is rewarded with the reiteration of a Buy rating and a $70 price target. Upside from current levels is 36%. (To watch Gill’s track record, click here)
Looking at the consensus breakdown, 18 Buys, 7 Holds and 1 Sell coalesce to a Moderate Buy consensus rating. There’s potential for 28% of upside, should the $66 average price target be met over the next 12 months. (See Micron stock analysis on TipRanks)
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