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What’s Driving Micron’s Growth?

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Mar. 27 2018, Updated 2:12 p.m. ET

Micron Technology highlights

Micron Technology (MU) is a name that has caught the attention of anyone and everyone interested in semiconductors. The company had its best year in calendar 2017, with its annual revenue growing 78% YoY (year-over-year) to $23.2 billion. The stock rose 87% in 2017, becoming the fastest-growing semiconductor stock of the year.

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Micron’s growth catalysts

Micron’s strong earnings were a result of multiple growth catalysts that could be here to stay for at least another 12 months. Micron earns over 60% of its revenue from DRAM (dynamic random access memory), and the acquisition of DRAM partner Inotera in December 2016 boosted returns from DRAM sales.

In 2017, DRAM prices rose as demand for high-performance DRAM rose more than expected thanks to growing adoption of GPUs (graphics processing units) in gaming and data centers and the advent of AI (artificial intelligence). On the other hand, Samsung (SSNLF) and SK Hynix stalled their new DRAM capacity to focus on NAND (negative AND), creating a shortage of DRAM. This shortage led to prices rising, which is likely to continue in 2018.

Rising DRAM prices are the first and most important growth catalyst for Micron. The second growth catalyst is higher returns on NAND chips as Micron reduces costs per bit by transitioning to advanced technology. Micron is expanding its market reach in the mobile and SSD (solid-state drive) markets, creating new revenue streams for the company. These growth catalysts were visible in its stock performance, which we’ll discuss next.

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