Micron Technology: A Closer Look at Recent Performance and Future Prospects
Shares of Micron Technology (MU) experienced a remarkable surge of over 14% in a single trading session last week, following the release of its fiscal Q4 results. This impressive rally has sparked interest among investors, particularly as the company forecasts higher-than-expected sales for the first quarter of fiscal 2025, which ends in November. Central to this growth narrative is the robust demand for Micron’s memory chips, particularly those utilized in artificial intelligence (AI) computing.
Recent Stock Performance
Despite the recent rally, MU stock has seen a pullback of 34% from its 52-week highs. However, it remains a strong performer overall, boasting a 52.5% increase over the past year and a 21.5% rise year-to-date. This volatility raises the question: is Micron a good buy at current levels? Let’s delve deeper into the company’s recent performance and future outlook.
Micron’s Strong Fiscal Q4 Performance
In its fiscal Q4 of 2024, Micron reported impressive results, driven by high demand for high-bandwidth memory (HBM) chips. These chips are essential for AI processors, particularly those designed by industry leader Nvidia (NVDA). Major tech companies, including Microsoft, Alphabet, Amazon, Meta, Tesla, and Apple, are investing heavily in AI, creating a significant market for Micron’s products.
Micron is one of only three companies producing HBM chips, a critical component for graphics processing units (GPUs) that power AI platforms like ChatGPT. Earlier this year, Micron announced that its HBM chips were sold out through 2025, indicating a strong demand trajectory. During the Q4 earnings call, CEO Sanjay Mehrotra emphasized that demand from data center customers remains robust, with healthy inventory levels.
Impressive Sales Forecasts
Micron’s guidance for fiscal Q1 of 2025 is particularly optimistic. The company expects to report record sales of $8.7 billion, significantly higher than Wall Street’s estimate of $8.28 billion. Additionally, Micron forecasts gross margins of 39.5%, a substantial increase from 22.3% in fiscal 2024. The management also anticipates adjusted earnings of $1.74 per share, surpassing the expected $1.65 per share.
The expanding AI market has been a crucial factor in helping Micron navigate challenges in legacy markets, such as personal computers and smartphones. Analysts predict that the AI PC market will require up to 30% more DRAM, further bolstering Micron’s growth prospects.
Valuation: Is Micron Stock Undervalued?
The semiconductor industry is known for its cyclical nature, but Micron appears to be on the cusp of a turnaround, driven by AI-related demand. The company’s sales growth accelerated to 93% in fiscal Q4, up from 81% in Q3, indicating a ramp-up in chip demand. Notably, revenue from compute and networking more than doubled to $3 billion in the July quarter.
Analysts project that Micron’s sales will rise from $25 billion in fiscal 2024 to $38 billion in fiscal 2025, with further growth to $45.6 billion by 2026. Adjusted earnings are expected to expand from $1.30 per share in 2024 to $8.95 per share in 2025 and $13.06 in 2026. With a forward price-to-earnings ratio of 12x, Micron stock appears undervalued, especially given its leadership in the HBM segment and improving profit margins.
Analyst Sentiment and Target Prices
Micron remains a "strong buy" on Wall Street, with 23 out of 27 analysts recommending a "strong buy," two suggesting a "moderate buy," one advising a "hold," and one recommending a "strong sell." The average 12-month target price for Micron is $147.11, indicating an upside potential of nearly 42% from current levels.
Conclusion
Micron Technology’s recent performance and optimistic forecasts paint a promising picture for the semiconductor giant. With strong demand for its HBM chips and a favorable position in the rapidly expanding AI market, Micron appears well-positioned for continued growth. Investors should keep a close eye on this stock as it navigates the evolving landscape of technology and AI.