Micron's stock may see its worst day since 2020. Why the bulls are still upbeat.

Dow Jones12-19

MW Micron's stock may see its worst day since 2020. Why the bulls are still upbeat.

By Emily Bary

Analysts are largely upbeat on Micron's stock, pointing to an upbeat AI narrative while noting that pressures on consumer markets shouldn't be much shock to Wall Street

Micron Technology Inc. came up well short of the consensus view with its outlook for the current quarter, but that shouldn't have come as much surprise to Wall Street, according to to TD Cowen analyst Krish Sankar.

Rather, the biggest shock to him is that Micron's stock $(MU)$ is down so much after the company's forecast, which called for $1.43 in adjusted earnings per share at the midpoint. Admittedly, that was even under Sankar's below-consensus estimate of $1.65, but he spies a buying opportunity "given the well-understood weakness in near-term memory pricing" but upbeat tone on artificial intelligence.

Read: Micron's stock skids as AI momentum doesn't make up for pressures elsewhere

Micron shares are off 16.6% in morning trading Thursday and pacing toward their worst single-day percentage decline since a 19.8% drop seen on March 16, 2020, according to Dow Jones Market Data.

Following the results, there's investor fear "that we are entering a multi-quarter correction in memory, similar to that of 2022-2023," according to Sankar. But he thinks that's an extreme view.

For one, Micron now has the benefit of high-bandwidth memory, a fast-growing part of the business that's seeing strong demand in the artificial-intelligence realm. Plus, Sankar expects inventory conditions to normalize by the second half of next calendar year, unlike what was seen in the 2022-2023 window.

"We believe we are still in the very early upcycle for consumer electronics driven by AI applications," Sankar continued, as he kept his buy rating but lowered his target price to $125 from $135.

But BofA's Vivek Arya was more downbeat, citing the weakness in personal computers and phones, which is weighing on gross margins.

"Historically the stock has struggled to outperform when [gross-margin] expansion has remained muted, leading to our stock downgrade to neutral from buy, even though we still feel positive about [Micron's] position in the HBM/AI market," Arya wrote. He lowered his price objective to $110 from $125.

Arya is in the minority, as 37 of 43 analysts tracked by FactSet hold bullish ratings. That includes Harsh Kumar of Piper Sandler, who kept the faith. "Most importantly, in our view, Micron's HBM story remains intact as the company has positioned itself to capitalize on market-expansion opportunities from data-center investments in 2025," he wrote.

He lowered his price target to $120 from $150 but reiterated an overweight call, with Micron's management noting that shipments exceeded what was planned in the latest quarter.

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Cantor Fitzgerald's C.J. Muse acknowledged that the outlook "was clearly much worse" than buy-side investors were expecting, but he saw this bout as "nothing but a flesh wound" for the company's dynamic random-access memory business.

"Following the post-Powell blood bath at the close Wednesday, shares clearly appear to be heading lower, with AI leverage unlikely to offer support near-term," he wrote. "This said, we do view this as simply a pause led by the more cyclical areas of the business with the more secular AI levers still well in play."

Micron shares still look poised to outperform next year, Muse added, while sticking with his overweight rating but cutting his target price to $130 from $150.

-Emily Bary

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December 19, 2024 10:23 ET (15:23 GMT)

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Comments

  • PrimeBlue
    12-19
    PrimeBlue
    This is a great buying opportunity. The potential of HBM is going to be a game changer for Micron with it being potentially capable of surpassing the entire DRAM revenue of today. The current consumer weakness is presenting a perfect opportunity to add on further position in MU as the consumer market is expected to recover in the second half of 2025, with Microsoft'S end of life support for Windows 10 and the uptick in demand for AIPC as we see more and more AI use case being made available to consumer.  Apart from the consumer market, NVIDIA B200 and GB200 platforms have designed in Micron's HBM product into the platforms. This is expected to ramp up even further with the expected increasing maturitt and shipment volume of Nvidia B200 and GB200   As such, Micron's current predic
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