Overview of Micron’s Recent Performance

Micron Technology, Inc. (NASDAQ: MU) had a rough week, with its stock plummeting, recording its sharpest decline since 2020. This decline came on the heels of the company’s latest quarterly report, showcasing impressive fiscal first-quarter results overshadowed by a disappointing forecast.

Financial Highlights

In the November quarter, Micron's revenues jumped 84% year-over-year to a staggering $8.71 billion, meeting Wall Street expectations. Remarkably, data center revenue soared more than 400% compared to the same quarter last year, representing over 50% of total revenue for the first time in history. The company also reported improved gross margins, increasing by 300 basis points quarter-over-quarter to 39.5%, leading to an adjusted earnings per share (EPS) of $1.79, which exceeded the projected $1.77.

Disappointing Outlook

While the financials look strong, the grim outlook for the February quarter disappointed investors. Micron projects revenues between $7.7 billion and $8.1 billion, alongside adjusted EPS ranging from $1.33 to $1.53. These figures fall significantly short of analyst expectations, which anticipated revenues of $8.99 billion and an EPS of $1.92. The company attributed this disappointing outlook to excess inventory levels and slack demand in sectors like PCs and smartphones, producing anticipated challenges for NAND bit shipments and pricing.

Future Predictions

Despite the short-term hurdles, Micron is optimistic about improvements in the latter half of fiscal year 2025. The company predicts a stabilization in supply and demand, alongside better inventory levels as PC and smartphone clients bounce back. The earnings call indicated that weaknesses in the NAND market primarily contributed to the revenue decline projected for the February quarter, which might recover as market conditions become more favorable.

Analyst Outlook

Analyst Harlan Sur from J.P. Morgan, who ranks in the top echelons of Wall Street’s analysts, noted silver linings amidst the stock's recent struggles. He pointed out that while the guidance for gross margins dropped to 38.5% for the next quarter, there’s still a positive indication that blended DRAM pricing could continue rising. With the company’s focus on enhancing its data center portfolio and its strong growth in High Bandwidth Memory (HBM), Sur sees potential for recovery.

Progress in High Bandwidth Memory

Indeed, Micron reported a sequential doubling of HBM revenue last quarter, with expected growth to continue through fiscal year 2025. The company has increased its 2025 HBM market forecast by 25%, predicting a market size of over $30 billion, with the total addressable market possibly reaching around $65 billion by 2028 and exceeding $100 billion by 2030.

Analyst Ratings and Future Potential

J.P. Morgan maintains a constructive stance on Micron, urging investors to stay positive. Sur believes the memory down-cycle will be brief and anticipates significant market recovery in the second half of 2025, driven by tight supply of leading-edge DRAM and sustained demand from AI server applications.

Conclusion

Sur has retained his Overweight (buy) rating for Micron, adjusting his price target from $180 to $145, which still represents a remarkable upside of approximately 61% from current prices. The average price target among analysts stands at $153, suggesting a 12-month upside of 70%. Overall, Micron continues to attract a strong consensus rating of Strong Buy, backed by 23 buy recommendations against only one hold.

As the market looks toward a potential recovery, Micron investors might have reason to hang tight for better days ahead!