Micron

MU

shares have surged 10% since it upped its second quarter fiscal 2021 guidance in early March, in the latest sign that its memory chip business is booming again. MU has posted three-straight quarters of revenue growth after it suffered a rough year-long stretch within the cyclical space. And now might be time to get in on the action.

Micron’s Comeback

Micron stock was a shining star in the semiconductor market and the broader tech space as it soared for two years between 2016 and 2018, before hitting a rough patch until the summer of 2020. MU followed a similar pattern from 2013 to 2015, which highlights the cyclical nature of chips and the memory market in particular.

Micron is one of the largest makers of DRAM and NAND memory chips on the planet. The industry is prone to waves and is heavily impacted by pricing. This means Wall Street often treats the stock more like a commodity than many other semiconductor stocks.

The company is exposed to various growth areas, with DRAM chips featured within PCs and servers. Meanwhile, NAND flash chips are crucial to smartphones and solid-state hard drives. MU’s FY19 sales slipped 23% and its FY20 revenue fell as well. But memory pricing and demand have rebounded and Micron hit its cyclical bottom in the first quarter of fiscal 2020.

Micron returned to growth in Q3. More recently, the Boise, Idaho-headquartered firm beat our first quarter FY21 estimates in early January and provided strong guidance, while noting that “for the first time in our history, Micron is simultaneously leading on DRAM and NAND technologies.”

What’s Next

Micron executives last quarter pointed to AI, 5G, cloud, and the intelligent edge as secular trends that it stands to benefit from. Analysts raced to up their outlooks at the time. Micron then on March 3 provided even stronger updated guidance.

Zacks estimate now call for MU’s fiscal 2021 revenue to jump 22% (up from 17%), with FY22 projected to climb nearly 30% higher to hit $33.7 billion. These estimates would mark a strong return to growth after two down years and see FY22 easily top fiscal 2018’s sales total.

At the bottom end, MU’s adjusted earnings are projected to soar 60% (up from its previous 36% estimate) this year and a whopping 101% in fiscal 2022. The nearby chart shows that Micron’s consensus earnings estimates have jumped since it laid out its updated guidance, with its FY21 figure up 17% and its FY22 figure up 19%.

What Else…

On Tuesday, March 16 Micron announced that it exited its 3D XPoint business to “shift resources to focus on accelerating market introduction of CXL-enabled memory products.” The technology failed to gain traction and the company decided it was time to move on. “Memory and storage are critical to the data economy, and the need for data center memory innovation has never been greater,” CEO Sanjay Mehrotra said in prepared remarks.

The announcement helped Micron pop 3.6% to reach $94.76 a share at the close on Wednesday. This puts it right at its all-time highs as the stock continues its run that’s seen it soar 153% in the last year to outpace Nvidia

NVDA

. Much of MU’s surge has come since the end of August, with the stock up 110%, including a 25% climb in 2021 to help it blow away the semiconductor market and the tech sector.

Micron mostly avoided the huge tech selloff that began in mid-February, as investors took home profits on Tesla

TSLA

, Shopify

SHOP

, Apple

AAPL

, and countless others. That said, it did take a rather large hit at the start of March but it has already recovered those losses.

MU’s run has stretched its valuation levels. Yet, given the memory space’s commodity-like standing within chips, it trades at a discount to its broader industry at 3.4X forward 12-month sales vs. 5.1X and at 13.9X forward earnings vs. 20.3X. Both also importantly represent discounts compared to its own year-long medians.

Bottom Line

Micron’s continually-improving earnings outlook helps it land a Zacks Rank #1 (Strong Buy) right now, alongside an “A” grade for Momentum in our Style Scores system. Plus, 14 of the 21 brokerage recommendations Zacks has for MU are “Strong Buys.”

Despite trading at record highs, Micron rests at 59 in terms of RSI, which is still below the 70 threshold that’s often regarded as “overbought.” Micron could be poised to extend its current streak, as it has before.

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