Micron Technology shares moved lower in early Thursday trading after the AI memory chip maker issued a tepid profit forecast, which offset a solid third quarter report and challenged the market consensus on near-term demand.
Micron (MU) has seen its market value more than double over the past year, to around $158 billion, thanks in part to its key position in the market for high- bandwidth memory, or HBM, chips, which improve performance and reduce power consumption in AI systems.
Those chips, including a new HBM3E iteration, are now being built into Nvidia's (NVDA) H200 processors, as well as its newly developed Blackwell systems, which have established Micron as one of just a few global companies that can compete in this fast-growing market.
The demand for those chips, as well as its legacy memory products, helped Micron post May-quarter earnings of 62 cents a share, well ahead of Wall Street forecasts, with revenue rising more than 81% from a year earlier to $6.81 billion.
"Micron drove robust price increases as industry supply-demand conditions continued to improve," CEO Sanjay Mehrotra told investors on a conference call late Wednesday. "This improved pricing, combined with our strengthening product mix, resulted in increased profitability across all our end markets."
Micron issues a muted revenue outlook
"As we look ahead to 2025, demand for AI PCs and AI smartphones and continued growth of AI in the data center creates a favorable setup that gives us confidence that we can deliver a substantial revenue record in fiscal 2025, with significantly improved profitability underpinned by our ongoing portfolio shift to higher-margin products," he added.
The confident outlook, however, translated only into a muted current-quarter revenue forecast of $7.6 billion, with a $200 million margin for error, and earnings in the region of $1.08 a share.
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"Obviously this is disappointing but clearly fits with traditional conservatism from Micron’s management team," said Cantor Fitzgerald analyst C.J. Muse, who affirmed his 'outperform' rating and $180 price target after the report.
"Moreover, management highlighted that HBM is now sold out for all of [calendar years 2024 and 2025] and reiterated expectations for billions of revenues in fiscal 2025," he added.
KeyBanc Capital Markets analyst John Vinh noted, however, that widening profit margins, tied to higher chip pricing, will likely add to Micron's gains from HBM demand and continue to boost its bottom line.
"Management is focused on several hundred million dollars of HBM target in fiscal 2024 and multiple billions of dollars in fiscal 2025, and expects HBM to be [gross-margin] accretive to its DRAM segment and its overall business," said Vinh, who lifted his price target $10 to $160 a share with an 'overweight' rating.
JPMorgan: Micron a top semiconductor pick
JP Morgan analyst Harlan Sur, who sees Micron as "one of our top picks in semis for next year", also added to his price target, taking it $50 higher to $180 per share with an 'overweight' rating, following last night's earnings.
"We believe the stock should continue to outperform through 2024," Sur and his team wrote, saying that strong DRAM/NAND momentum, driven by AI demand, "underpins our bullish outlook."
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"HBM3E capacity is sold out through calendar 2025, with significant growth expected in fiscal 2025," he added. "AI-driven demand for HBM and enterprise [solid-state drives] is enhancing profitability."
Other price-target changes include those from UBS analyst Timothy Arcuri, who lowered his by $2 to $153, and Stifel analyst Brian Chin, who lifted his $20, to $165 while reiterating a 'buy' rating.
Nvidia tie-in key
Goldman Sachs analyst Toshiya Hari was also bullish on the results, lifting his price target $20 to $158 and advising clients to view stock's recent pullback as an opportunity to add to their positions.
BofA Securities analyst Vivek Arya, who reiterated his 'buy' rating and $170 price target, sees not only solid gains from Micron's HBM3E ramp, but also "additional opportunities in high-capacity DDR5 and data-center SSDs, driven by rising AI/traditional server demands, and edge AI growth."
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DDR5 ram, released in 2020, provides more performance with less power than its predecessors, while solid-state drives are used in flash-memory storage on laptop and desktop computers.
Angelo Zino, senior equity analyst at CFRA Research, was also upbeat, adding $40 to his Micron price target and taking it to $170 prior to last night's report, arguing that HBM expansion "should drive wider gross margins and multiple expansion as Micron's revenue shifts toward higher value offerings."
We remain confident in the MU story as it benefits from pricing/unit growth given potential AI content driven gains across the PC, smartphone, and data center server markets through CY 25," Zino said. "Better mix towards higher value offerings (HBM, high-capacity DIMMs, and data center SSDs) will help expand margins/drive record profitability."
Micron shares were marked 7.7% lower in mid-day trading to change hands at $131.42 each, a move that would still leave the stock up more than 55% for the year.
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