This Tech Stock's Growth Should Pick Up Speed After Earnings

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The tech stock sell-off has dampened Micron Technology‘s (NASDAQ:MU) year-to-date rally in recent weeks with the memory specialist losing some ground, but investors should be pouncing on this dip as the company will soon regain its mojo.

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Micron will report its fiscal 2021 second-quarter results on March 31. The chipmaker looks all set to deliver blowout numbers, and don’t be surprised to see strong guidance as well. Let’s take a closer look at expectations for this quarter and explore the reasons why the stock should switch into a higher gear post-earnings.

Rising memory prices are boosting results

Micron Technology previously upgraded its fiscal second-quarter outlook on March 3, just a day before the end of the quarter. The company’s updated guidance calls for revenue to land between $6.20 billion and $6.25 billion and non-GAAP diluted earnings between $0.93 and $0.98 per share.

The chipmaker previously anticipated earnings of $0.68 to $0.82 per share on revenue between $5.6 billion to $6.0 billion. The non-GAAP gross margin forecast also increased from a range of 30% to 32% to a range of 32% to 33%.

These numbers point to a huge year-over-year jump for Micron’s top and bottom lines. The company delivered adjusted earnings of $0.45 per share in the year-ago period on revenue of $4.8 billion, while the non-GAAP gross margin stood at 29.1%. So Micron expects earnings to more than double as revenue grows 30% year over year, driven by the massive increase in memory prices.

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The spot price of dynamic random access memory (DRAM) has shot up close to 60% since the beginning of 2021, hitting the highest levels seen since March 2019. A huge increase in demand from PCs (personal computers), data center servers, smartphones, and an uptick in automobile production has led to tight supply conditions in the memory market, sending prices higher.

As a result, DRAM contract prices are expected to rise 13% to 18% sequentially in the second quarter of 2021, according to TrendForce. That would exceed the 3% to 8% quarter-over-quarter increase seen in the current period.

A similar trend is anticipated in the NAND flash market as well. UBS recently pointed out that the contract price of NAND memory could increase 5% quarter on quarter in the second quarter of 2021, a big improvement over the initial estimate of a 7% decline. The price growth is expected to gather more pace the following period with a sequential increase of 10%, followed by a 2% increase in the final months of the year.

All of this is great news for Micron Technology as most memory chips are sold based on contract prices, paving the way for the company to deliver stronger growth in future quarters.

Better days are in the cards

Analysts thus anticipate Micron Technology will provide solid guidance this week. They currently expect revenue to increase 27% year over year in the fiscal third quarter to $6.76 billion. As contract prices for memory chips clock even higher growth rates going forward, Micron should see its top-line growth accelerate through the remainder of this year and into fiscal 2022.

That’s why investors intrigued by Micron Technology shouldn’t delay their purchases as favorable demand-and-supply dynamics can make it a top growth stock for 2021 and beyond.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.