Micron Technology(NASDAQ: MU) stock surged nearly 80% in early 2024 and reached an all-time high of $153.14 on solid adoption of its high-performance memory products in the information economy. Despite this success, the stock is currently down by almost 32% from those highs.
Investors were disenchanted with the corporate’s fiscal 2024 third-quarter results (ended May 30), especially AI sales which fell in need of lofty expectations. Moreover, geopolitical and provide chain challenges plaguing the general semiconductor industry also didn’t help overall investor sentiment for Micron.
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The difficult days, nonetheless, may now develop into a thing of the past. Micron got here out with impressive results for its fiscal 2024’s fourth quarter (ended Aug. 29) in late September, with revenue and earnings beating analysts’ estimates. The corporate has been a significant beneficiary of the explosive demand for memory and data storage products in various applications corresponding to high-performance computing, autonomous driving, data analytics, and complicated AI models.
This is clear considering that the corporate’s high-margin high-bandwidth memory (HBM) chip inventory (a kind of dynamic random access memory or DRAM chip) is already sold out until 2025.
Wall Street can be optimistic about Micron. For the 44 analysts covering Micron stock, the median goal price is $145.96, implying an upside of 40% from here. This appears to be a plausible goal, considering the numerous strengths of Micron stock. Here’s why Micron is well poised to surge in the approaching months.
Data center server unit shipments are expected to grow in 2024, driven by increasing demand for AI and traditional servers. Data centers are also expected to exchange multiple older-generation servers with fewer latest-generation traditional servers for performance improvements, higher power efficiency, and higher space management.
Plus, DRAM and NAND content in conventional and AI servers is rising to satisfy the memory demands of complex applications in areas corresponding to cloud computing, artificial intelligence, and 5G connectivity. All these trends bode extremely well for Micron’s memory offerings.
Micron has been on the forefront of leveraging this growing opportunity. The corporate is investing capital within the advanced one-beta DRAM node technology in addition to G8/G9 NAND process technology to extend the production capability of its high-margin DRAM offerings, including Double Data Rate 5 (DDR5), Low Power Double Data Rate 5 (LPDDR5), and HBM chips, in addition to advanced NAND chips.
Moreover, Micron is working on the next-generation 1-gamma DRAM production technology that uses extreme ultraviolet lithography and expects to make use of it for volume production in 2025. The corporate’s investments in transitioning from older nodes to advanced nodes and AI-powered smart manufacturing capabilities have helped boost yields for its high-performance memory chips.
Micron now expects its HBM, DDR5, and LPDDR5 offerings, and data center SSDs (solid-state drives use NAND flash memory) to rake in multiple billions of dollars in revenue in fiscal 2025.
Micron estimates the worldwide HBM market to grow from $4 billion in 2023 to greater than $25 billion in 2025. The corporate is targeting almost 20% to 25% share of the HBM market by 2025. While a comparatively small goal market, HBM chips are expensive, bringing in additional profits for Micron. With Micron, SK Hynix, and Samsung being the one three major memory manufacturers targeting the HBM market, these chips enjoy significant pricing power.
Micron has also succeeded in developing technologically superior HBM chips. The corporate’s 12-high (12-high implies 12 memory layers are stacked together within the chip) output HBM3E chips eat almost 20% less power while providing 50% more DRAM capability than the competitors’ 8-high output HBM3E chips. That is a significant advantage since processors and DRAM chips account for a good portion of the ability consumption at data centers.
Micron has inked long-term agreements with customers for its HBM chips, and has already concluded pricing for calendar 2024 and 2025. This has resulted in impressive revenue visibility for its HBM business. The corporate has already earned several hundred million dollars of HBM revenue within the fourth quarter of fiscal 2024.
Moreover, Micron can be developing next-generation HBM chips, including HBM4 and HBM4E. Since HBM4 technology will offer customization capabilities, these offerings may also differentiate Micron within the mass-produced memory market.
Micron has reported robust ends in fiscal 2024, with revenue growing 62% 12 months over 12 months to $25.1 billion and the gross margin growing 31 percentage points 12 months over 12 months to 23.7%. The corporate also reported a non-GAAP net income of $1.47 billion in fiscal 2024, a dramatic improvement from a $4.86 billion loss within the previous 12 months.
The corporate also boasts a powerful balance sheet with $9.2 billion in money and investments and $13.4 billion in total debt.
Micron has resumed its share repurchase program (which was suspended two years ago) in light of improving industry conditions. The corporate repurchased $300 million price of shares within the fourth quarter.
Despite the numerous strengths and improving financials, the stock is trading at 4.6 times sales, far lower than the vast majority of semiconductor players. With Micron now working on differentiating its memory offerings coupled with a dramatic rise in demand, the corporate can surge significantly higher in the approaching months.
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Manali Pradhan has no position in any of the stocks mentioned. The Motley Idiot has no position in any of the stocks mentioned. The Motley Idiot has a disclosure policy.