Micron Technology Inc. went into its latest earnings report with investors looking for clues on capacity and pricing in the memory-chip space.
But even though the company delivered next-quarter guidance and a gross margin forecast that exceeded expectations, its shares dropped 2.8% on Wednesday.
One issue is that Micron’s stock was up 41% on the month going into the report, which meant the company had to live up to high expectations. But TD Cowen analysts noted that perhaps investors are also fearful that Micron’s strong beat is reminiscent of April 2021, when the stock peaked during an upcycle.
They explained that in the first stage of a de-rating cycle, through which valuation multiples come down, a “stock peaks when pricing momentum weakens,” then “over multiple quarters this translates to demand weakening” or a first cut to earnings per share. That is then “followed by a prolonged downturn,” the analysts said.
However, the TD Cowen team said the first stage still “feels quarters away,” and they are confident that the reward opportunity trumps the risk potential when looking at Micron’s stock due to the company’s “unprecedented cloud mix,” which refers to its dynamic random-access memory offerings. They also cited personal-computer and smartphone growth.
Ahead of the earnings report, analysts said investors would be looking for clarity from Micron on its position in the market for high-bandwidth memory, which is a type of DRAM. The TD Cowen analysts noted that one positive sign coming out of earnings is that HBM pricing looks to be locked for most of next calendar year, with Micron on pace to completely book up its supply for the next calendar year before this year is up.
And with Nvidia Corp. raising requirements for the next-generation HBM4 memory bandwidth from 8 gigabytes per second to 10 gigabytes per second, the analysts said it’s “the biggest proof that memory sits at the center of this [artificial-intelligence] revolution, something we haven’t seen before” in DRAM.
On the company’s earnings call, Micron Chief Executive Sanjay Mehrotra said that DRAM supply remains tight from accelerating AI-driven demand, and that the chip maker’s HBM4 is on track to support customer chip ramps even with increasing performance requirements. Micron has recently shipped customer samples of HBM4, Mehrotra said, which include “industry-leading bandwidth.”
Micron’s expectations that HBM supply will be tight for the next year could drive higher average sales prices and margins, Cantor Fitzgerald analysts said in a Tuesday note, adding that they model the HBM market reaching $50 billion by the end of 2026, with Micron making up a 25% share. However, Micron is still finalizing its 2026 agreements, and Cantor analysts said until there’s more clarity around pricing and volume for both HBM3e and HBM4, there “will be an ongoing investor concern.”
While some on Wall Street are setting price targets for Micron’s stock between $210 and $220, Mizuho desk-based analyst Jordan Klein said in a Wednesday note that “smarter investors never hold the stock expecting the target price to be fully achieved,” and that more bullish investors are likely looking to sell before the peak.
Therefore, he thinks that Micron’s stock performance Wednesday showed that “many believe their upside is like 15-20% from $165-170 as that is where the smart money will take profits and run.” Given high volume and “generally high” downside risks in memory, the 15% to 20% upside potential is not major, he said.
“It has had a monster run and some pullback on profit-taking is to be expected,” Klein said.
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