Shares of Micron Technology (NASDAQ:MU) have rallied impressively over the past three months as investors and Wall Street have warmed up to the fact that the demand for memory chips is going to remain strong in 2022 and beyond, thanks to several applications ranging from computers to consoles to data centers.
However, there’s one more catalyst for Micron Technology that investors may have overlooked — the metaverse. Let’s see how this hot tech trend could give Micron a nice boost in 2022 — and in the long run — and amplify the company’s growth prospects.
The metaverse can boost memory demand
Wall Street sees the metaverse creating the need for more storage. Lee Seung-woo of South Korea-based securities firm Eugene Investment & Securities in a note to investors said that “memory chips constitute a core infrastructure of [the] metaverse.” Jeff Kim, an analyst at South Korean investment bank KB Securities, also points out that memory demand would increase as companies building the metaverse spend money to upgrade data center servers.
As it turns out, the metaverse would require more hyperscale data centers and edge data centers, as huge amounts of data will be shared between several end points in real-time. Imagine that you’re in a virtual office inside the metaverse along with your colleagues. The data center will have to process the activities taking place inside that virtual office and deliver the same in real-time to all the users to ensure a seamless experience.
This would create a massive load on the data centers that are currently geared to tackle meetings conducted through methods such as videoconferencing, where the users simply look at a screen to interact. Simply put, the metaverse needs accelerated computing to cater to the needs of this emerging tech trend, which would create the demand for more DRAM (dynamic random-access memory).
That’s because DRAM plays a critical role in enabling high-performance computing (HPC) as it reduces latency and allows the server processors to quickly access the data flowing into the data center. DRAM will help improve the computing power of data centers as well as the deployment of metaverse applications.
As a result, don’t be surprised to see the DRAM market grow at a faster pace than what analysts are currently estimating right now. According to third-party estimates, the global DRAM market could generate $173 billion in revenue by 2026, as compared to $105 billion in 2020, indicating that Micron is sitting on a secular growth opportunity.
Why Micron Technology is a top metaverse stock to buy right now
Micron Technology has been delivering outstanding results consistently thanks to this healthy memory demand and pricing environment.
Things are about to get better for Micron on account of the memory boom, and the metaverse is going to add to the company’s existing growth drivers. Not surprisingly, analysts are upbeat about Micron’s future. Estimates compiled by Yahoo! Finance project that Micron’s revenue could grow at a faster pace of 20% in the next fiscal year, as compared to the current fiscal 2022’s estimated growth of 16%.
The bottom-line forecasts also paint a rosy picture, with fiscal 2022 earnings expected to increase 47% over last year, while fiscal 2023 earnings are expected to jump nearly 30%. It is also worth noting that 23 of the 30 analysts covering Micron stock have raised their fiscal 2022 earnings estimates over the past month, while 23 of the 29 analysts covering the stock for fiscal 2023 have made a similar move.
What’s more, the company’s long-term earnings growth forecast is also quite robust, at 23.8%. Given Micron’s impressive growth so far and its bright prospects, buying this tech stock looks like a no-brainer, as it is trading at just 16 times trailing earnings and 9 times forward earnings. This makes it cheaper than the S&P 500, which has an earnings multiple of 28.8.
Throw in a potential catalyst such as the metaverse, and investors looking to buy a dirt-cheap growth stock have more reasons to load up on shares of Micron Technology.
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.