Micron Technology Inc.'s year-long turnaround in the tough memory-chip market has garnered praise from analysts. However, even with a boost from artificial intelligence (AI) sales, the company may need another year to break even.
On Thursday, Micron's shares stood out as the only decliner on the PHLX Semiconductor index, falling over 6% to an intraday low of $63.83, while the chip index gained 2.2%. The S&P 500 index was up 0.9%, and the tech-heavy Nasdaq Composite was up 1.1%.
BofA analyst Vivek Arya expects Micron to start breaking even on a per-share basis no earlier than a year from now. Although there is excitement surrounding data centers and AI, Arya believes it is too small to have a significant impact on Micron in the near and medium-term. He also believes that it is insufficient to offset sluggish phone and PC sales, as well as Micron's late entry into the high-bandwidth memory market.
Arya maintains a neutral rating and a price target of $70 for Micron's stock.
In July, Micron collaborated with Nvidia Corp., which adopted Micron's HBM3 Gen2 DRAM chips in its AI data-center products. The current AI frenzy has led to increased demand for hardware capable of powering data centers that can handle the massive amounts of throughput required by AI models.
Wolfe Research analyst Chris Caso, who has an outperform rating on Micron's stock and a price target of $80, believes that while the company has shown some progress in its results and forecast, further progress is necessary to drive profitability. Caso states that profitability is essential for Micron to break out of its trading range. He expects this to become increasingly likely as Micron introduces data-center and PC memory products next year.
Following Wednesday's report, analysts paid close attention to Micron's gross-margin forecast for the fiscal first quarter, as it significantly influenced the company's profitability outlook.
Although Micron Technology Inc. has made notable progress in its year-long turnaround, challenges remain in the tough memory-chip market. Analysts are cautiously optimistic about Micron's future profitability but anticipate that it may take another year for the company to break even. Micron's entry into the AI data-center products segment and upcoming launches of data-center and PC memory products are seen as potential catalysts for driving profitability and propelling Micron's stock beyond its current trading range.
Micron Expects Negative Margins for Fourth Consecutive Quarter
Despite improvements in gross margins compared to previous quarters, Micron Technology Inc. anticipates negative margins for the fourth consecutive quarter, resulting in a loss ranging from 2% to 6%. The Chief Financial Officer, Mark Murphy, stated that the forecast is based on the assumption that no further inventory write-downs will be required due to memory-chip pricing.
Christopher Danely, an analyst at Citi Research, holds a positive outlook on Micron's stock, rating it as a "buy" with a target price of $85. He emphasized that the current state of the memory-chip cycle is of greater significance than the pace of Micron's margin recovery. Danely explained that Micron's lower gross margins can be attributed to factors such as weaker mix, lower utilization, and negotiated deals to reduce inventory. However, he firmly believes that these margin challenges will disappear as the upturn in the market gains momentum.
According to the Citi analyst, the DRAM (dynamic random access memory) upturn has already commenced, with spot prices increasing and contract pricing expected to follow suit. Micron's core expertise lies in manufacturing DRAM and NAND memory chips. While DRAM is commonly found in PCs and data-center servers, NAND chips are prevalent in smaller devices such as smartphones and USB drives.
Krish Sankar, an analyst at TD Cowen, expressed an optimistic outlook, giving Micron an "outperform" rating and a target price of $78. He predicts that if macroeconomic conditions remain stable, there will be a surplus of demand for memory chips next year. Sankar attributes this projected undersupply to a reduction in wafer starts as Micron shifts its outdated production equipment to more advanced technology. Additionally, a decrease in output by Samsung is expected to contribute to the DRAM/NAND undersupply scenario in calendar year 2024.
FactSet data reveals that out of the 38 analysts covering Micron, 29 provide buy-grade ratings, seven have hold ratings, and two hold sell ratings. The average target price for Micron's stock stands at $81.48.
Year to date, Micron shares have experienced a 32.5% increase, surpassing the gains of the SOX chip index Semiconductor Index SOX (36%), the S&P 500 (12%), and the Nasdaq (27%).