Micron technology(NASDAQ:MU) The stock rose nearly 80% in early 2024 and hit an all-time high of $153.14 on strong adoption of its high-performance memory products in the data economy. Despite this success, the stock is currently down nearly 32% from those highs.
Investors were disappointed with the company’s fiscal 2024 third-quarter results (ended May 30), especially with AI sales falling short of lofty expectations. Furthermore, the geopolitical and supply chain challenges affecting the broader semiconductor industry also did not help overall investor sentiment towards Micron.
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However, the difficult days may now be a thing of the past. Micron reported impressive results for the fourth quarter of fiscal 2024 (ended August 29) in late September, with revenue and earnings exceeding analyst estimates. The company has been a major beneficiary of the explosive demand for memory and data storage products in various applications, such as high-performance computing, autonomous driving, data analytics and complex AI models.
This is evident considering that the company’s inventory of high-margin high-bandwidth memory (HBM) chips (a type of dynamic random access memory or DRAM chip) is already sold out through 2025.
Wall Street is also bullish on Micron. For the 44 analysts covering Micron stock, the average price target is $145.96, implying an upside of 40% from here. This seems like a plausible goal, considering the many strengths of Micron stock. Here’s why Micron is well poised to surge in the coming months.
Data center server unit shipments are expected to grow in 2024, driven by growing demand for AI and traditional servers. Data centers are also expected to replace several older generation servers with fewer traditional next-generation servers for improved performance, greater energy efficiency, and better space management.
Additionally, DRAM and NAND content in conventional and AI servers is increasing to meet the memory demands of complex applications in areas such as cloud computing, artificial intelligence, and 5G connectivity. All of these trends bode very well for Micron’s memory offerings.
Micron has been at the forefront of taking advantage of this growing opportunity. The company is investing capital in advanced one-beta DRAM node technology as well as G8/G9 NAND process technology to increase production capacity of its high-margin DRAM offerings, including Double Data Rate 5 (DDR5) , Low Power Double Data Rate. 5 (LPDDR5) and HBM chips, as well as advanced NAND chips.
Additionally, Micron is working on next-generation 1-gamma DRAM production technology using extreme ultraviolet lithography and expects to use it for volume production in 2025. The company’s investments in transitioning older nodes to advanced nodes and capabilities AI-powered smart manufacturing technologies have helped increase the performance of its high-performance memory chips.
Micron now expects its HBM offerings, DDR5 and LPDDR5, and its data center SSDs (solid-state drives use NAND flash memory) to generate several billion dollars in revenue in fiscal 2025.
Micron estimates that the global HBM market will grow from $4 billion in 2023 to more than $25 billion in 2025. The company is targeting a 20% to 25% share of the HBM market by 2025. While It is a relatively small target market, HBM chips are expensive. , generating more profits for Micron. Since Micron, SK Hynix and Samsung are the only three major memory makers targeting the HBM market, these chips enjoy significant pricing power.
Micron has also managed to develop technologically superior HBM chips. The company’s 12-high (12-high implies 12 layers of memory are stacked together on the chip) output HBM3E chips consume nearly 20% less power and provide 50% more DRAM capacity than conventional chips. HBM3E 8 high performance competition. This is a big advantage since processors and DRAM chips account for a significant portion of power consumption in data centers.
Micron has signed long-term agreements with customers for its HBM chips and has already locked in pricing for the years 2024 and 2025. This has resulted in impressive revenue visibility for its HBM business. The company already earned several hundred million dollars in revenue from HBM in the fourth quarter of fiscal 2024.
In addition, Micron is also developing next-generation HBM chips, including HBM4 and HBM4E. Since HBM4 technology will offer customization capabilities, these offerings can also differentiate Micron in the mass-produced memory market.
Micron has reported strong results in fiscal 2024, with revenue growing 62% year over year to $25.1 billion and gross margin growing 31 percentage points year over year to 23.7%. The company also reported non-GAAP net income of $1.47 billion in fiscal 2024, a dramatic improvement from a loss of $4.86 billion a year earlier.
The company also has a strong balance sheet with $9.2 billion in cash and investments and $13.4 billion in total debt.
Micron has resumed its share buyback program (which was suspended two years ago) in light of improving industry conditions. The company bought back $300 million worth of stock in the fourth quarter.
Despite the many strengths and improving financials, the stock trades at 4.6 times sales, well below most semiconductor players. Now that Micron is working to differentiate its memory offerings along with a dramatic increase in demand, the company can ramp up significantly in the coming months.
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Manali Pradhan has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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