Micron Technology (NASDAQ: MU) wowed traders final week with an excellent set of outcomes for the second quarter of its fiscal 2024, reporting an enormous bounce in its income and a shock revenue, and this despatched shares of the reminiscence specialist hovering.

The chipmaker benefited from a jump in demand for memory chipsr. As a end result, its income elevated an enormous 58% yr over yr to $5.8 billion. Micron is anticipating stronger year-over-year development of 76% in its high line within the present quarter, pushed by elevated urge for food for reminiscence chips from artificial intelligence (AI) servers, smartphones, and private computer systems (PCs).

The reminiscence trade has witnessed a big turnaround of late as demand for shopper electronics is again on monitor, whereas AI has created the necessity for superior reminiscence chips often called high-bandwidth reminiscence (HBM). Micron administration remarked on the newest earnings-conference name that its HBM capability for 2024 is offered out, whereas the “overwhelming majority of our 2025 supply has already been allocated.”

This is nice information for Lam Research (NASDAQ: LRCX), a semiconductor gear producer that will get a giant chunk of its income from promoting its items to reminiscence producers similar to Micron. Let’s take a look at the the reason why Micron’s newest outcomes are a sign that traders would do effectively to purchase Lam Research inventory proper now.

Lam Research is about to witness a stable turnaround

In the newest quarter, Lam Research bought 48% of its income from promoting semiconductor manufacturing gear to reminiscence producers. This explains why the corporate’s leads to latest quarters have been poor. An oversupply within the reminiscence market compelled the likes of Micron and others to place a maintain on capability enlargement, and so Lam’s high and backside strains have been heading south.

Analysts anticipate the corporate to complete the present fiscal yr with a 22% decline in income to $13.6 billion. Additionally, earnings are anticipated to drop to $26.76 per share from $34.16. However, as the next chart exhibits, Lam Research’s income and earnings may bounce sharply within the subsequent fiscal yr, which can start on the finish of June 2024.

Story continues

Micron’s newest outcomes and administration commentary inform us simply why Lam’s fortunes are set to show round. Memory makers might want to enhance their provide of HBM to cater to the rising demand from AI servers. The good half is that Lam is already witnessing stable orders for HBM gear. CEO Tim Archer identified on the corporate’s January convention name with analysts: “In 2024, we expect our HBM-related DRAM and packaging shipments to more than triple year on year… “

It can be value noting that the general reminiscence market is about to leap massive time in 2024. According to Gartner, the reminiscence trade’s income may bounce 66% this yr following a 39% drop in 2023. More importantly, the rising adoption of AI is about to drive sturdy long-term reminiscence demand.

According to Micron, AI-enabled PCs are prone to carry 40% to 80% extra DRAM (dynamic random entry reminiscence) content material when in comparison with conventional PCs. On the opposite hand, the corporate expects AI-capable smartphones to “carry 50% to 100% greater DRAM content compared to non-AI flagship phones today.”

Meanwhile, the demand for HBM is forecast to greater than double in 2024, producing $14 billion in income as in comparison with $5.5 billion final yr. Even higher, the HBM market may generate virtually $20 billion in income subsequent yr. All this means that reminiscence producers should ramp up their manufacturing capacities, and a more in-depth take a look at the trade signifies that is simply what’s taking place.

Samsung, for instance, is anticipated to extend HBM manufacturing by 2.5 occasions in 2024, adopted by a 2x enhance subsequent yr. Similarly, SK Hynix expects to extend its capital expenditure this yr to help growing HBM demand. As such, the end-market situations are set to show favorable for Lam Research.

Buying the inventory is a no brainer proper now

Lam Research is at present buying and selling at 27 occasions ahead earnings estimates. That’s a small low cost to the Nasdaq-100‘s common a number of of 28 (utilizing the index as a proxy for tech shares). If Lam Research’s earnings hit the $46 estimate, and it have been to commerce at 28 occasions earnings, that will put its inventory at $1,288, a 33% bounce from its present worth.

However, do not be shocked to see the inventory delivering stronger features because the market could reward it with the next earnings a number of due to its AI-fueled development, which is why traders ought to think about shopping for this semiconductor inventory earlier than it jumps larger.

Should you make investments $1,000 in Lam Research proper now?

Before you purchase inventory in Lam Research, think about this:

The Motley Fool Stock Advisor analyst crew simply recognized what they consider are the 10 best stocks for traders to purchase now… and Lam Research wasn’t one in all them. The 10 shares that made the reduce may produce monster returns within the coming years.

Stock Advisor supplies traders with an easy-to-follow blueprint for fulfillment, together with steerage on constructing a portfolio, common updates from analysts, and two new inventory picks every month. The Stock Advisor service has greater than tripled the return of S&P 500 since 2002*.

See the 10 stocks

*Stock Advisor returns as of March 25, 2024

Harsh Chauhan has no place in any of the shares talked about. The Motley Fool has positions in and recommends Lam Research. The Motley Fool recommends Gartner. The Motley Fool has a disclosure policy.

1 Semiconductor Stock to Buy Hand Over Fist After Micron Technology’s Stellar Report was initially printed by The Motley Fool