Source: Wall Street See

On Wednesday, June 26th, after the US stock market closed, the memory chip manufacturing leader released their Q3 results for the 2024 fiscal year ending in May. Although all financial metrics on the financial statements were better than expectations, the guidance for the next quarter was only deemed to be 'meeting market expectations', not impressive enough, causing Micron Technology to fall more than 9% after the market. Before the financial report was released on Wednesday, Micron Technology rose by 0.9%, then fell 7% from the historical high in last Tuesday's closing price. Its stock price has risen nearly 67% year-to-date and doubled over the past 12 months.$Micron Technology (MU.US)$Although all financial metrics on the financial statements were better than expectations, the guidance for the next quarter was only deemed to be 'meeting market expectations', not impressive enough, causing Micron Technology to fall more than 9% after the market.

Micron Technology's full Q3 report exceeded expectations at all levels, but the guidance for the next quarter only met market expectations, which is not impressive enough, causing Micron Technology to fall more than 9% after the market.

Before the financial report was released on Wednesday, Micron Technology's stock rose by 0.9%, then fell 7% from the historical high in last Tuesday's closing price. Its stock price has risen nearly 67% year-to-date and doubled over the past 12 months.

Micron Technology's Q3 financial report was overall better than expected, though its guidance for the next quarter was only deemed to be 'meeting market expectations', not impressive enough.

As the demand for AI technology continues to grow and there is an increasing demand for higher performance memory solutions, the demand driven by AI has continued to increase the revenue of data centers. Micron Technology's total revenue in the third fiscal quarter was $6.81 billion, a 81.6% YoY increase from $3.75 billion in the same period last year and higher than analysts' expected $6.67 billion in revenue. The revenue was also higher than last quarter's $5.82 billion.

The net profit for this quarter was $332 million, or earnings per share of $0.30, far exceeding the net loss of $1.9 billion or loss per share of $1.73 in the same period last year. Adjusted EPS for the quarter was $0.62 per share, higher than the market's expected $0.51 per share. Operating profit for the quarter was $941 million, also higher than the expected $869.1 million, with an adjusted operating profit margin of 28.1%, better than the expected 27.2%.

The financial report also exceeded the company's previously provided official guidance: Q3 revenue increased 76% YoY to $6.6 billion, non-GAAP gross profit margin was 26.5%, and adjusted EPS was $0.45, with GAAP EPS at $0.17 per share.

Micron Technology predicts that its adjusted revenue for the next quarter ending in August will be in the range of $7.4 billion to $7.8 billion (i.e., $7.6 billion plus or minus $200 million), with a midpoint that essentially meets analysts' expected $7.58 billion. It is estimated that the adjusted EPS for the next quarter will be $1.08 per share plus or minus $0.08, with market expectations at $1.02 per share. The adjusted operating profit margin for the next quarter is expected to be between 33.5% and 35.5%, with market expectations at 34.5%.

The company also stated that it expects to increase prices again in the 2024 fiscal year and plans to "significantly increase capital expenditures next year." It is expected that capital expenditures for the 2025 fiscal year will be in the middle range of 30% to 40% of revenue. Specifically, the operating cash flow for Q3 was $2.48 billion, lower than analysts' expected $3.24 billion, and the company stated that the demand for the DRAM and NAND industries will exceed supply this year.

Micron Technology CEO Sanjay Mehrotra stated in the Q2 report that the company is "one of the biggest beneficiaries of the semiconductor industry's years of growth driven by AI," and continues to emphasize the AI business in the Q3 report. However, he also admitted that the smart phone and personal computer markets are still weak.

He stated that the company's AI-driven product prices may rise, and that revenue for AI-generated data center products has grown by 50%:

"Strong demand for AI-driven data center products has resulted in a tight supply of cutting-edge nodes. Therefore, although the short-term demand for personal computers and smart phones remains stable, we expect product prices to continue to rise in 2024."

In a conference call with analysts, company executives stated that their high-bandwidth memory (HBM) chip orders for AI chips have been sold out until 2025; there is unprecedented high demand from the industry and retail customers. However, uncertainties still exist in the industry and retail demand.

Wall Street previously had higher expectations for the financial report, particularly placing great emphasis on Micron's high-bandwidth memory pricing capabilities for AI servers.

Wall Street had extremely high expectations for this financial report and believe that Micron Technology will benefit from the continuous growth of personal computer and smart phone demands, the reduction of excess memory chip inventories for cars and industrial clients, and the surge in demand related to AI technology.

On the one hand, AI servers with strong demand for memory are accelerating their purchase of Micron's high-bandwidth memory (HBM) chips. At the same time, PCs and smartphones with AI capabilities also require more memory.

Therefore, the industry generally expects that Micron Technology will benefit from the pricing power of DRAM (Dynamic Random Access Memory) and NAND flash technology, which has been continuously rising in price. Previously, Micron had stated that most of the HBM used in AI servers this year and in 2025 had sold out. JPMorgan also stated that DRAM and NAND storage technology will continue to rise in price until 2025, and even extend to 2026.

Citigroup analysts pointed out that considering the trend of rising DRAM prices and Micron Technology's expanding market share and product range in the AI memory field, it is expected that the company's fourth quarter revenue will further increase to $8 billion. Citigroup has therefore listed Micron Technology as a "preferred stock" and raised its target price from $150 to $175, representing a 24% upside potential.

The market will also focus on Micron Technology's partnership with the "AI darling" Nvidia, as Micron Technology produces high-bandwidth memory chips for Nvidia's AI GPUs. JPMorgan has said that Micron's HBM will strongly enter Nvidia's GPU market, and will be able to get a share of Nvidia's AI revenue in the future. "The demand driven by AI is the fastest growing new driving force in the memory chip market."

Institution CFRA predicts that HBM may account for more than 20% of Micron Technology's DRAM revenue in fiscal year 2025, currently accounting for only a single-digit percentage. As Micron's revenue mix shifts to higher-value products, gross margins should significantly increase, with gross margin expected to double from 20% at the end of the fiscal quarter ending February this year to over 50% at the end of fiscal year 2025.

Brokerage firms Wolfe Research and Raymond James have both rated Micron Technology as "outperform" and raised their target prices to $200 and $160, respectively, on the optimistic outlook for traditional DRAM prices pushed up by HBM demand. Micron Technology may achieve earnings per share of $20, and the supply of memory industry remains tight this year, with DRAM and NAND prices potentially achieving consecutive double-digit percentage increases.

Editor / jayden