The semiconductor market is in great shape in 2024, and 2025 looks to be even better due to drivers like AI.
2024 will prove to be a solid year for the global semiconductor industry with multiple catalysts. These include a surge in demand for chips that can manage artificial intelligence (AI) workloads, an upturn in the fortunes of the smartphone market, and a recovery in the personal computer (PC) market.
These factors explain why global semiconductor industry revenue is expected to grow by 16% to $611.2 billion in 2024, according to World Semiconductor Trade Statistics (WSTS). This marks a turnaround from last year, when semiconductor industry revenue fell 8%. Even better, the semiconductor sector is expected to continue growing in 2025, with WSTS predicting industry revenue will increase 12.5% to $687.4 billion next year.
More specifically, WSTS predicts memory market revenue to increase 25% to $204.3 billion in 2025. After all, memory is expected to remain the fastest-growing semiconductor segment next year, with revenue for this segment estimated to increase by almost 77% in 2024.
There’s one company that could help investors carve out a niche in this fast-growing semiconductor market next year. That’s Micron Technology. (MU 0.88%). Let’s take a look at why buying this semiconductor stock now could be a smart move.
Surge in memory demand should help Micron Technology
WSTS is not alone in predicting a sharp rise in the memory market next year. Market research firm TrendForce predicts that dynamic random access memory (DRAM) sales could increase by 51% in 2025, while the NAND flash storage market could grow by 29%. Both markets are expected to reach record highs next year.
Growth in these memory markets will be driven by strong demand and improving prices. TrendForce predicts that DRAM prices will rise 35% year-over-year next year due to increased demand for high-bandwidth memory (HBM) used in AI processors and more DRAM installed in servers. Meanwhile, rising demand for enterprise-class solid-state drives (SSDs) and growth in smartphone storage will provide tailwinds for the NAND flash market.
These positive trends explain why Micron plans to start the new fiscal year on a positive note. The company’s revenue for fiscal year 2024 (ending August 29) was $25.1 billion, an increase of 61% from the previous year. The company reported non-GAAP (generally accepted accounting principles) earnings of $1.30 per share (loss of $4.45 per share in fiscal 2023) due to a significant increase in operating margins due to a recovery in memory prices. ).
More importantly, Micron expects fiscal 2025 first-quarter sales of $8.7 billion, at the midpoint of its guidance range. This is an 84% increase compared to the same period last year. The memory specialist expects non-GAAP earnings of $1.74 per share for the quarter, up sharply from a loss of $0.95 per share in the year-ago period.
The good news is that sales and bottom line profits are expected to rise significantly in both FY2025 and FY2026 (see chart below).
MU revenue forecast data for this year by YCharts
Thanks to the health of the memory market, it’s no surprise that Micron has experienced such impressive growth. However, there is a good chance that the results will ultimately exceed analysts’ expectations.
“We are investing to support artificial intelligence (AI)-driven demand, and our manufacturing network is well positioned to realize these opportunities,” Micron management said in its latest earnings call. Ta. The company plans to spend $3.5 billion in capital expenditures in the first quarter of fiscal 2025, significantly higher than the $1.7 billion it reported in the same period last year.
Micron is doing the right thing by increasing its capital investment, as it has announced that it has sold all of its HBM capacity for 2024 and 2025. According to Micron’s estimates, the opportunities available to address in the HBM market are expected to expand from $4 billion in 2023 to $25 billion next year.Thus, with increased capital investment, Micron will strengthen its production capacity. As a result, the company is able to meet more demand, which could lead to better-than-expected results for the company.
Investors can expect solid returns from this chip stock over the next few years
Micron stock has seen some volatility this year, but it’s still up a respectable 30% compared to the PHLX Semiconductor Sector Index’s 25% gain. However, since the company released its quarterly results on September 25th, the stock has gained impressive momentum. Thanks to the strong trends in the memory market, it is likely that this upward trend will be maintained beyond 2025. As discussed.
We’ve already seen in the graph that Micron’s earnings could reach $8.91 per share in the current fiscal year and then jump to $12.80 per share in fiscal 2026. Assuming that Micron earns $12.80 per share a few years from now and trades at a multiple of 30 times, its expected earnings at that point are calculated using the forward earnings multiple of the Nasdaq 100 index (using the index as a proxy for tech stocks). ), the stock price could reach $384.
That’s a significant increase from Micron’s current stock price of about $109, and suggests the chip stock could deliver significant gains over the next two years. Considering Micron’s price-to-earnings ratio is currently just 12.5 times, investors are getting a pretty good deal on this tech stock that is poised to soar.
