The ever-evolving technology sector has seen quite a few trends in the last couple of years, the notable ones being cloud computing, Big Data, Bring Your Own Device (BYOD), Internet of Things, flash storage, social networking and 3D printing.
Among these, flash memory — a non-volatile, electronic computer storage medium that can be re-programmed — is perhaps the most talked about. It is used in solid state drives (SSDs), computer random access memory (RAM), universal serial bus (USB) drives, hybrid drives, digital camera, handsets, memory cards graphics cards and pagers.
The key driving force of the worldwide flash memory market is its increasing use in cell phones that have now higher memory capacities. The exponential growth in the amount of data, complexity of data formats and the need to scale resources at regular intervals have compelled several companies to turn to flash memory vendors.
There is a radical change in the way people are using devices and communicating with each other, leading to increased adoption of mobile devices. Naturally, demand for flash storage has shot up.
Flash Memory: Massive Growth Potential
Per Statista, the flash memory market is expected to be worth $27.6 billion globally in 2020.
IDC forecasts that by 2025, the global datasphere will grow to 163 zettabytes (that is a trillion gigabytes), which is 10 times the 16.1 zettabytes (ZB) of data generated in 2016. Due to the high performance and low latency features of flash storage, it has become the ideal storage technology to harness this data explosion.
The growing need for storing this massive data as well as faster access is significant for effective utilization of Big Data and business analytics applications. According to market research firm IDC, revenues from these applications are expected to grow from $122 million in 2015 to more than $187 million in 2019 (up more than 50%).
Moreover, per Research and Markets projections, worldwide data center storage market will expand at a four-year compound annual growth rate (CAGR) of 15.01% during 2016-2020.
Notably, the growing demand for storage across applications such as consumer electronics and enterprise storage sectors have significantly driven the NAND flash memory market, particularly 3D NAND memory. According to Allied Market Research, the market is anticipated to grow at a CAGR of 33.7% to $39 billion over 2014-2022.
3 Bets in the Flash Memory Space
With the flash memory market becoming more lucrative than ever, we bring to you a few promising stocks, which could be interesting long-term investment options.
Micron Technology, Inc. (MU - Free Report) , one of the leading worldwide providers of semiconductor memory solutions, offers both DRAM and NAND products. According to a number of industry sources, prices for both of these components have been improving, largely because of improved product mix optimization and higher demand from PCs, servers, and mobile devices.
Micron is engaged in developing next-gen memory technologies such as 3D NAND and 3DXPoint with Intel (INTC). We are optimistic about the company’s future, given its acquisition of smaller memory-chip makers such as Inotera Memories Inc.
Moreover, Micron is expected to benefit from strong demand for NAND flash memory chips, which are used in smartphones and tablets. Driven by new tablet products and greater adoption of solid state drive (SSD), total demand in the NAND flash memory industry could surpass manufacturing capacity, leading to a periodic shortage and higher pricing in the near term.
Rising memory prices are expected to boost Micron's revenues. Per the Zacks Consensus Estimate, the company will witness around 11% growth in fiscal 2018 year. Its earnings are expected to surge around 30% in 2018.
The company currently has a Zacks Rank #1 (Strong Buy) and a long-term EPS growth rate of 10%. You can see the complete list f today’s Zacks #1 Rank stocks here.
The stock has returned approximately 84.8% in the last one year, outperforming the industry’s gain of just 83.8%.
Western Digital Corporation (WDC - Free Report) is a global data storage technology and solutions leader. The company’s efforts toward expanding its footprint in the flash storage are commendable. In doing so, the company started developing the 96-layer 3-D NAND flash technology in June. Within a month the company also announced its development of X4, flash memory design built on 64-layer 3D NAND, BiCS3 technology.
Most recently, the company also signed an agreement to acquire Tegile Systems and completed the acquisition of the assets of Upthere, an app-based cloud-storage startup. We believe these deals will strengthen its foothold in this space and should prove valuable.
The common link between the aforementioned acquisitions is that all these companies provide cloud based flash-driven storage solutions which are growing rapidly.
The acquisition of SanDisk has opened new avenues of growth for the company, particularly in the NAND and SSD markets. Also, the acquisitions of other flash-memory players such as Amplidata, sTec, Velobit, Inc., Arkeia Software Solutions are other positives.
Hence, the increasing demand for flash storage bodes well for Western Digital, which is taking an inorganic route to bolster flash storage offerings.
The company currently has a Zacks Rank #3 (Hold) and a long-term EPS growth rate of 7.5%. The stock has returned approximately 67.5% in the last one year, significantly outperforming the industry’s gain of just 23.9%.
Pure Storage, Inc. (PSTG - Free Report) is a leading provider of all-flash storage products. Adoption of flash storage is increasing rapidly, particularly in enterprises, due to inherent advantages of speed (i.e. responsiveness), portability, efficiency and reliability over legacy storage systems.
The company’s expanding product portfolio (that includes platforms like NVMe, Purity FlashBlade, 75 blades up to 8 PB of storage, Object Storage, and Active Cluster) is the key catalyst, in our view.
The company is fast gaining traction in the flash storage market, which is evident from its accelerating customer base. Customer growth has been exemplary. The count witnessed a CAGR of 124%, from 300 in first-quarter fiscal 2015 to 3,350 in first-quarter fiscal 2018. During this period, revenues grew at a CAGR of 157%. Notably, 25% of the total revenue comes from cloud customers. Increasing spending from top 25 customers has been a major growth driver.
Moreover, robust demand for FlashArray and FlashBlade products is projected to boost the top line, which is now expected to reach $2 billion by fiscal 2021 (more than 30% CAGR over fiscal 2018–2021 time frame). Pure Storage is considered a pioneer in the all-flash array category and the solid growth projections bode well for long-term growth.
The company currently has a Zacks Rank #3 (Hold). The stock has returned approximately 32.5% on a year-to-date basis, significantly outperforming the industry’s gain of just 12.8%.
The above-mentioned stocks are in the spotlight with striking performances supported by their strong foothold in the flash memory market. Keeping that in mind, we believe these stocks to yield robust returns throughout the rest of this year.
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