Micron and Sandisk have both reached record margins as memory chip prices have risen. A Motley Fool analyst argues Micron is the better pick because of its exposure to high bandwidth memory and its cheaper valuation.
Motley Fool analyst Keithen Drury picks Micron over Sandisk after both memory chip makers posted record margins. He writes that memory chip demand is at an all-time high and that supply has run out, which pushed chip prices sharply higher.
Micron's HBM exposure gives it an edge
Both companies make NAND memory, which stores data over the long term, often in solid-state drives. However, Micron also makes DRAM, which gives computing devices quick access to information.
A subsegment of DRAM is high bandwidth memory, or HBM, which sits inside graphics processing units. Micron points out that industry HBM shipments will grow faster than conventional DRAM.
For 2027 and 2028, it also expects industry NAND and DRAM shipments to grow in the low to mid-20% range both years. Drury says that gives Micron an edge over Sandisk.
Micron also announced an industry-first partnership on a custom HBM chip for Nvidia. Drury says this could lead to a more contractual situation that stabilizes Micron's revenue.
Long-term contracts reduce cyclical risk
Memory chip prices can rise and fall with demand, so revenue and cash flows in the industry are often unstable. Both companies are responding with long-term supply agreements. Micron estimates it has secured about 35% of its revenue through 2030, while Sandisk has signed about 50% of its clients to such contracts.
Drury says the trade swaps some upside from higher prices for guaranteed revenue. This reduces the ceiling but raises the floor of business performance.
Valuation leaves room to rally
Drury argues the market expects a cyclical downturn at any moment, so neither stock trades at a very high premium. He thinks both should trade at a nearly average premium for big tech stocks. If they rally to something like 20 times earnings by the end of their fiscal years, the stocks could triple or quadruple in value by this time next year, he says.
That outcome depends on the market recognizing that the two companies have shifted to be less exposed to cyclical downturns. Drury calls Micron the winner because of its HBM exposure and its far cheaper price tag, while he calls Sandisk a solid pick.
Source: The Motley Fool
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