Stock Story -
What Happened? Shares of memory chips maker Micron (NYSE:MU) jumped 18.2% in the morning session after the company reported impressive fourth-quarter earnings results. Micron beat across most of the key metrics we track, including revenue, operating profit, and EPS. Notably, the company recorded a whopping 93% revenue growth compared to the previous year, showing that the AI party is still ongoing for the memory chip maker. Management attributed the outperformance to the growing demand for memory chips that power generative AI applications.
Notably, the shift in computation from end devices to data centers is powering the strong demand for Micron's data center business, which achieved a record revenue quarter. Growth in the data center business was mostly driven by the demand for high-capacity solutions and HBMs (High bandwidth memory - a memory technology optimized for AI tasks). To demonstrate the attractive opportunity ahead, Micron projects that the HBM market will grow from $4 billion in 2023 to over $25 billion by 2025.
Other areas of growth highlighted during the quarter include AI-driven PCs, smartphones, and automotive use cases. Notably, PC manufacturers are ramping up their inventory due to rising memory prices, and this trend might be accelerated by the growing adoption of AI-driven PCs, which use more memory, even as memory manufacturers allocate more production capacity to data center demands. Other favorable trends include the end of support for the Windows 10 operating system, the release of Windows 12, and the upcoming replacement cycle.
To meet the strong demand for its products, Micron is expanding its production nodes and fabs in Idaho, New York, India, and China.
Therefore, it wasn't surprising that management provided strong sales and profitability guidance for the next quarter, which exceeded Wall Street's expectations. A minor blemish was that its inventory levels increased. However, the strong AI-powered demand picture and improved pricing might provide some relief for Micron. Zooming out, we think this was a very solid quarter.
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What The Market Is Telling Us Micron Technology’s shares are quite volatile and have had 16 moves greater than 5% over the last year. But moves this big are rare even for Micron Technology (NASDAQ:MU) and indicate this news significantly impacted the market’s perception of the business.
The previous big move we wrote about was 14 days ago when the stock dropped 6% on the news that the company received a double rating downgrade from Exane BNP Paribas (EPA:BNPP) analyst Karl Ackerman. Ackerman lowered the stock's rating from Outperform (Buy) to Underperform (Sell) and cut the price target from $140 to $67.
The analyst cited the reason for the downgrade, adding, "While some investors correctly anticipate downside risk to near-term results, we think Micron will underperform AI peers through '25 as HBM (High Bandwidth Memory) capacity oversupply leads to a faster than anticipated market correction of conventional DRAM ASPs (Average Selling Prices). We are 34%/45% below consensus CY25/CY26 EPS."
This means the analyst anticipates that an oversupply of HBM chips (a type of memory design that achieves high speed by stacking memory chips) will weaken Micron's pricing power. This could lead to lower profit margins and make it harder for the company to meet its near-term profitability goals.
Micron Technology is up 33.5% since the beginning of the year, but at $109.94 per share, it is still trading 28.4% below its 52-week high of $153.45 from June 2024. Investors who bought $1,000 worth of Micron Technology’s shares 5 years ago would now be looking at an investment worth $2,263.
