Since this year, thanks to the sharp rise in volume and price brought about by the recovery in the storage industry,$Micron Technology (MU.US)$The performance has rebounded, and its stock price has risen very much as a result. Looking ahead to 2024, the company's performance is expected to pick up at an accelerated pace as the storage industry continues to enter an upward cycle, and as HBM demand fueled by the AI boom brings benefits to Micron Technology.

Strong performance drives up stock prices

By the close of the US stock market on April 12, Micron had accumulated a cumulative increase of nearly 49% this year, outperforming the S&P 500 Index (7.4%) and the Philadelphia Semiconductor Index (13.6%). The stock price once rose to $130.54 in the intraday session on April 4, a record high.

Micron's strong share price momentum is partly due to its excellent performance. According to the financial report released by Micron Technology on March 20, in the second fiscal quarter of the 2024 fiscal year ending February 29, the company's revenue soared 58% year-on-year to US$5.82 billion, higher than analysts' general expectations of US$5.35 billion; adjusted earnings per share were US$0.42, which turned losses from previous quarters into profits, and was also higher than the loss of $0.24 per share widely anticipated by analysts.

Sanjay Mehrotra, CEO of Micron Technology, said during the second fiscal quarter earnings conference call: “The company has recovered profits and achieved positive operating margins well over a quarter ahead of schedule.”

Meanwhile, Micron Technology expects revenue for the third fiscal quarter to be between US$6.4 billion and US$6.8 billion, up 70% to 81% year on year, higher than analysts' general expectations of US$5.99 billion; the adjusted earnings per share are expected to be around US$0.45, fluctuating up and down US$0.07, higher than analysts' general expectations of US$0.24; gross margin is expected to be between 25% and 28%, higher than analysts' general expectations of 20.9%.

In fact, Micron Technology's first fiscal quarter results announced in December last year have already exceeded market expectations and led the stock price to rise by more than 12% in the same month. On March 21, Micron Technology surged more than 14%, boosted by the “explosion” results for the second fiscal quarter and the outlook for the third fiscal quarter announced in March.

The storage industry has passed the cold winter, and Micron Technology's performance is expected to pick up at an accelerated pace

Since the beginning of 2022, due to factors such as slowing demand, increased supply, and increased price competition, the memory chip market has entered a downward cycle, and storage giants, including Micron Technology, have experienced significant performance declines or even losses.

According to a report by Gartner, the world's leading IT research and consulting agency, the size of the global memory chip market fell by 37% in 2023, making it the segment with the biggest decline in the semiconductor market. The cumulative operating losses of several storage giants, such as Samsung Electronics, SK Hynix, Micron Technology, and Western Digital, are estimated to have broken records of 5 billion US dollars, the worst performance in the past 15 years.

However, with major memory chip manufacturers announcing reductions in production capacity and capital expenses related to the storage business, memory chip inventory adjustments have been effective, market demand is picking up, global memory chip prices are gradually recovering from last year's sharp decline, and the storage industry is likely to enter a recovery cycle in 2024.

Take Micron Technology as an example. According to specific products, the company's DRAM revenue for the second fiscal quarter increased 21% month-on-month to US$4.2 billion, accounting for 71% of total revenue. This was mainly due to the 10% increase in the average DRAM price in the quarter, and shipments also achieved a single-digit percentage increase; NAND revenue increased 27% month-on-month to US$1.6 billion, accounting for 27% of total revenue, and the average price increase of NAND Flash during the quarter was over 30%. Financial reports also showed that the increase in product prices led to a 19 percent month-on-month increase in the company's overall gross margin in the second fiscal quarter.

In fact, as early as December of last year's results for the first fiscal quarter, Micron CEO Sanjay Mehrotra predicted that 2024 would be a year for the storage industry to rebound. “We expect business fundamentals to improve in 2024, and industry TAM (potential market size) is expected to achieve a breakthrough in 2025,” he said at the time. Meanwhile, in the fiscal second quarter earnings conference call, Sanjay Mehrotra promised investors that 2024 will mark a sharp rebound in the storage industry and 2025 will reach record sales levels.

Currently, the three core application markets for memory chips — mobile phones, personal computers (PCs), and servers — have basically come out of the “dark time”. At the same time, the rise of emerging application markets represented by smart cars and artificial intelligence (AI) will drive demand for memory chips to rise further in the future.

From an industry perspective, according to TrendForce's forecast data, the average price of overall storage contracts in 2024 is expected to rise quarterly, whether for DRAM or NAND Flash. At the same time, by observing the recent month-on-month improvements in the performance of leading storage vendors represented by Samsung Electronics and SK Hynix, it can be predicted that the storage industry is expected to enter an upward cycle in 2024.

Other industry insiders said that the third and fourth quarters of last year were price increases driven by storage manufacturers' production cuts and supply restrictions, but now price increases are mainly driven by increased new demand, and there is no doubt that prices will continue to rise in the future.

The World Semiconductor Trade Statistics Organization predicts that in 2024, the global semiconductor market is expected to reach 588.4 billion US dollars, an increase of 13.1% over the previous year; of these, the share of the memory chip segment will rise to 22.06 billion US dollars, and the market size will rise to 129.8 billion US dollars, an increase of 44.8% over the previous year, ranking first in the semiconductor segment. As one of the major players in the storage industry, Micron is expected to benefit from the industry's recovery.

The AI boom sparks demand for HBM or becomes a “new engine” for revenue generation for Meiguang Technology

Another catalyst driving Micron's stock price increase is the strong demand for HBM (high-bandwidth memory) under the artificial intelligence boom. As a high-bandwidth, large-capacity memory, HBM achieves vertical stacking through TSV silicon technology. It has the characteristics of high speed, high bandwidth, low power consumption, small size, etc., and is specially used in the field of high-performance computing and graphics processing.

Driven by the AI boom, demand for HBM has surged. According to SK Hynix's forecast, demand in the HBM market will grow rapidly at a CAGR of 109% between 2022 and 2025. According to forecast data from the well-known research institute Mordor Intelligence, the HBM market size is expected to surge from about US$2.52 billion in 2024 to US$7.95 billion in 2029, with a compound annual growth rate of 25.86% during the forecast period (2024-2029).

Micron Technology is another market participant in the HBM market other than SK Hynix and Samsung Electronics. However, according to TrendForce Jibang Consulting's research, in 2023, SK Hynix occupied 46%-49% of the HBM market share. Samsung Electronics' market share was not much different, while Micron only had a 4%-6% market share.

For Micron Technology, a lower HBM market share also means more room for growth. Micron has also stepped up the pace of catching up with the two South Korean storage giants. As AI chips are updated and iterated, mainstream HBM product specifications in 2024 are expected to be transferred to HBM3 and HBM3E. Meanwhile, Micron announced at the end of February that it has begun mass production of its HBM3E high-bandwidth memory solution and will be applied to the Nvidia (NVDA.US) H200 Tensor Core GPU, which is expected to be shipped in the second quarter.

Some professionals pointed out that Micron Technology uses its 1beta technology, advanced TSV process, and other differentiated packaging solutions to produce HBM3E products, which helps the company enhance its technical competitiveness and market share in data center-level products.

Goldman Sachs analysts pointed out that as Micron successively delivers HBM3E products to Nvidia, the company may acquire other customers, including AMD (AMD.US). The analyst said, “I believe Micron still has a lot of room to deepen its cooperation with Nvidia — that is, gain a higher market share in the future GPU market and expand its customer base outside of Nvidia.”

Micron Technology emphasized in its second-fiscal quarter earnings report that the company's 2024 HBM production capacity has been sold out, and the vast majority of the 2025 supply has already been distributed. Micron is expected to generate hundreds of millions of dollars in revenue from HBM products in fiscal year 2024. Starting in the third fiscal quarter, HBM's revenue will increase its DRAM and overall gross profit margin. However, it is worth noting that Micron Technology's performance growth in the 2024 fiscal year is still expected to be mainly driven by rising prices and increased demand for DRAM and NAND Flash, and the revenue contribution that HBM can bring to the company is still relatively limited.

Furthermore, a competition for more advanced HBM4 related technologies is already underway among major storage giants. SK Hynix proposed a blueprint to launch HBM4 in 2026, and Samsung Electronics plans to launch HBM4 products in 2025. Although Micron doesn't have much public information on HBM4, the company revealed the next generation of HBM memory, tentatively named HBMNext, which is most likely its HBM4 technology research and development plan.

Some industry insiders believe that in the future, as Micron Technology's new products continue to gain strength, due to America's geographical advantage, local US tech giants may increase their procurement efforts for Micron Technology's HBM products, which will help increase the company's market share. Sanjay Mehrotra also said, “Our HBM for data center AI applications reflects the strength of our technology and product roadmap, and we are fully prepared to seize the huge opportunities AI brings to the terminal market.”

Micron Technology has become the “new darling” of AI, and Wall Street banks have raised their target prices

Citi said that Micron Technology is the bank's “preferred investment target” in the US semiconductor sector, mainly because the company's stock price is bound to benefit from surging demand for HBM under the AI boom. Citi reaffirmed its “buy” rating for Micron and raised its target price for the stock from $95 to $150.

J.P. Morgan analyst Harlan Sur reiterated Micron's “overweight” rating and raised the target price from $100 to $130. Harlan Sur believes the stock will continue to perform well in 2024 as the market continues to recognize Micron's 2025 revenue/margin/profitability improvements.

Currently, Wall Street's general rating for Micron Technology is “buy,” and most analysts give a “strong buy/buy” rating; the average target price is $127.79, and some analysts have given a target price as high as $225.

Editor/Jeffrey