$Micron Technology (MU.US)$After the Wednesday closing, the fourth quarter financial report was released, garnering a positive response with a post-market stock price increase of about 12%. The company's revenue and EPS both exceeded expectations, seen as a significant turning point. Previously, the company's stock price had dropped over 40% from the 52-week high, and concerns about a shorter memory upcycle had emerged. These results, along with significantly better-than-expected optimistic guidance, seem to alleviate these concerns.

Let's first quickly review the results:

Revenue for the fourth quarter was $7.75 billion, up $0.1 billion from the same period last year, a 93% year-on-year increase. The EPS was $1.18, up $0.07 from the same period last year, far higher than Micron's fourth quarter of 2023 at -$1.07.

Estimated median revenue for the first quarter of 2025 is $8.7 billion, with an EPS of $1.74, exceeding expectations and showing significant improvement from the first quarter of 2024.

Micron attributes its strong performance to robust growth in High-Bandwidth Memory (HBM) and datacenter NAND sales.

This report comes at a crucial time as analysts have been drastically cutting target prices and downgrading stock ratings. They fear that consumer memory demand may weaken when the memory upcycle should be in full swing.

Last week, analysts pointed out that micron technology is worth a strong buy. This is based on the expectations of the long-term rising trend of DRAM and NAND demand, the growth of high-margin HBM in datacenter applications, and the undervaluation providing favorable risk-return conditions.

1. Is micron technology expecting soft demand for consumer-grade DRAM and NAND in the 2025 fiscal year, or will shipments improve?

2. Will HBM3E begin to have a significant impact on revenue? How will it affect the bottom line and profit margin for the 2025 fiscal year?

3. Despite uncertain sales volume, will the average selling price (ASP) continue to improve?

Analysts originally expected pessimistic answers to these questions, while this article expects optimistic answers. It seems that the bulls have won this round. As expected, HBM and datacenter NAND shipments led in the fourth quarter, but guidance for the first quarter of 2025 is surprisingly optimistic, ignoring numerous analyst downgrades. Micron's first-quarter guidance exceeded expectations, indicating that the growth of datacenter HBM and NAND is strong enough to offset any softness in consumer NAND and DRAM demand, further demonstrating the continued robust demand for ai infrastructure.

In fact, micron technology stated that NAND revenue reached a record in the fourth quarter, with enterprise SSD sales exceeding 1 billion US dollars for the first time in a quarter. With consumer memory inventory being cleared, shipments and average selling prices of all micron products in the second half of 2025 are likely to increase again, bringing record revenue and sustained profit margin growth. The average selling price seems to remain strong, as gross margin for this quarter soared to 36.5%, an increase of over 800 basis points quarter-over-quarter. With HBM becoming a more important part of the revenue mix in the 2025 fiscal year, we will see this number only continue to rise. The company's 39.5% mid-point gross margin guidance serves as evidence.

Despite significant capital expenditures to expand the sold-out HBM3E capacity, the company still generated 0.323 billion US dollars in free cash flow. As capital expenditures normalize and the memory cycle truly enters a full development stage, we will see a significant increase in free cash flow. Micron should be able to buy back a large amount of stocks, just as it did in the previous upturn cycle. I am not usually a fervent fan of share buybacks, but for cyclical companies like micron technology, spending money on buybacks when the economy is good at least makes more sense because it can be anticipated when the economy will turn bad.

Overall, this report seems to indicate that many concerns about the shortening of the memory upcycle are unfounded. Datacenter demand for DRAM and NAND remains strong, even though consumer demand is still somewhat subdued. With inventory clearing, this situation is also expected to reverse. Expanded profit margins, significant growth expected in first-quarter revenue and earnings, and strong enterprise demand all suggest that this cycle and micron technology stocks still have a lot of upside. Despite soft consumer-grade memory demand, this softness is expected to be temporary as the overall upcycle continues. Micron's stock price remains at a favorable valuation, with profit margin expansion and revenue and profit growth still on the rise. Strong demand for NAND in enterprises and HBM will boost the company as consumer inventory clears.

Editor/ping