The increasing use of cloud computing, artificial intelligence, and other advanced technologies, and the rollout of 5G technology, should drive the technology industry’s growth. Although these factors have already driven the tech-heavy Nasdaq composite to hover near its all-time high, factors like historically-high inflation, intensifying supply-chain issues, and the Federal Reserve’s decision to begin tapering its bond-buying this month could drag the benchmark down in the near term.
Nevertheless, efforts to address a global semiconductor chip shortage and heightened demand for next-generation tech products and solutions have boosted investor interest in this industry. This is evidenced by the iShares U.S. Technology ETF’s (IYW) 8.4% returns over the past month versus the SPDR S&P 500 ETF Trust’s (SPY) 5% gains.
Because major tech stocks trading at expensive valuations may experience a correction amid the market volatility, we think it could be wise to bet on undervalued tech stocks Micron Technology, Inc. (MU) and VMware, Inc. (VMW) to cash in on the industry’s long-term growth.
Micron Technology, Inc. (MU)
MU designs, manufactures, and sells memory and storage products worldwide. The Boise, Idaho, company operates through computer and networking, mobile, storage, and embedded business units. It sells dynamic random access memory chips (DRAMs), static random access memory chips (SRAMs), flash memory, semiconductor components, and memory modules to various end markets.
On November 1, 2021, MU announced the availability of its high-performance 16Gb/16Gbps GDDR6 memory solution with Advanced Micro Devices, Inc.’s (AMD) AMD Radeon RX 6000 Series graphics cards built on the AMD RDNA 2 gaming architecture. Using MU’s advanced 1z process technology, this latest version of GDDR6 enables up to 512GB/s system performance and fulfills the requirements for high bandwidth memory, minimized lag time, and system performance needed in graphics and gaming applications. MU is looking forward to generating high demand in the coming months.
On October 27, 2021, MU announced the immediate availability of Micron Crucial DDR5 desktop PC memory products that deliver up to 50% faster data transfer speeds, effective bandwidth, higher density, and better power efficiency over previous-generation DDR4 memory to provide enthusiast-level performance. MU expects to witness great demand for these memory products in the coming months.
MU’s non-GAAP revenue for its fiscal fourth quarter, ended September 2, 2021, increased 36.6% year-over-year to $8.27 billion. The company’s non-GAAP gross profit came in at $3.96 billion, indicating an 87.8% rise from the prior-year period. Its non-GAAP operating income was $3.07 billion, up 136% from its year-ago period. While its non-GAAP net income increased 126% year-over-year to $2.78 billion, its non-GAAP EPS increased 124.1% to $2.42. As of September 2, 2021, the company had $7.83 billion in cash, cash equivalents, and restricted cash.
An $8.74 consensus EPS estimate for the current year represents a 44.2% year-over-year improvement. Analysts expect MU’s revenue to improve 15% year-over-year to $31.85 billion in the current year. It surpassed the Street’s EPS estimates in each of the trailing four quarters. The stock’s EPS is expected to grow at a 22.3% rate per annum over the next five years.
Over the past year, MU has gained 25% in price and closed yesterday’s trading session at $75.46. In terms of forward non-GAAP forward PEG, MU is currently trading at 0.41x, which is 76.6% lower than the 1.75x industry average. In terms of forward EV/EBITDA, MU is currently trading at 4.68x, which is 73% lower than the 17.32x industry average.
MU’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
The stock has an A grade for Value and Momentum, and a B grade for Growth and Quality. Click here to see the additional ratings for MU (Sentiment and Stability).
Of the 102 stocks in the A-rated Semiconductor & Wireless Chip industry, MU is ranked #23.
VMware, Inc. (VMW)
VMW develops and applies virtualization technologies with x86 server-based computing, separating application software from the underlying hardware. The Palo Alto, Calif. company’s products and technology solutions include multi-cloud, virtual cloud networking, digital workspace, application modernization, and intrinsic security solutions. It sells its products through distributors, resellers, system vendors, and systems integrators.
On November 11, 2021, Vodafone Group Plc (VOD) selected VMW as its strategic technology partner to deliver a single platform to automate and orchestrate all workloads running on its core networks across Europe, starting with 5G standalone. In addition to utilizing VMware Telco Cloud Infrastructure as its Network Functions Virtualization (NFV) platform, VOD will leverage VMware Tanzu for Telco and VMware Telco Cloud Automation to orchestrate all network functions and services to run its core networks. This will enable VOD to offer customers quick and large-scale high-speed networks to support critical applications requiring ultra-low latency connectivity. VMW is looking forward to a long-term partnership with VOD.
On October 28, VMW announced a collaboration with eero, an Amazon.com, Inc. (AMZN) company, to pair eero 6 series mesh Wi-Fi systems with VMW’s VMware SASE Work from Home solution to boost remote network connectivity while extending critical security services to devices connecting to an at-home corporate network. Announcing eero as a preferred Wi-Fi provider, VMW is looking forward to gaining high demand from hybrid working models in the coming months.
For the fiscal second quarter ended July 30, 2021, VMW’s total revenue increased 9.1% year-over-year to $3.14 billion. The company had $5.86 billion in cash and cash equivalents as of July 30, 2021.
Analysts expect VMW’s revenue to improve 8.90% year-over-year to $12.81 billion for the current year. It surpassed the consensus EPS estimates in each of the trailing four quarters. The stock’s EPS is expected to grow at a 7.4% rate per annum over the next five years.
VMW has lost 13.2% in price over the past year and ended yesterday’s trading session at $123.30. VMW’s 1.53x non-GAAP forward PEG is 12.8% lower than the 1.75x industry average. In terms of forward EV/EBITDA, VMW is currently trading at 11.57x, which is 33.2% lower than the 17.32x industry average.
VMW’s POWR Ratings reflect its solid prospects. VMW has an A grade for Value, and a B grade for Quality. In addition to the POWR Ratings grades we have just highlighted, one can see VMW’s Growth, Sentiment, Momentum, and Stability here.
VMW is ranked #5 of 59 stocks in the Software – Business industry.
Want More Great Investing Ideas?
MU shares were trading at $75.82 per share on Thursday afternoon, up $0.36 (+0.48%). Year-to-date, MU has gained 0.99%, versus a 26.64% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market. More...
More Resources for the Stocks in this Article
|Ticker||POWR Rating||Industry Rank||Rank in Industry|
|MU||Get Rating||Get Rating||Get Rating|
|VMW||Get Rating||Get Rating||Get Rating|