While Sandisk and Western Digital shares were down, Micron erased its intraday losses
Micron's stock was up fractionally Thursday afternoon.
Shares of Micron Technology were rising Thursday even as other memory-related stocks came under pressure.
Micron's stock $(MU)$ was up fractionally in Thursday afternoon trading, at last check, whereas they had been down as much as 5.6% earlier in the trading day. Meanwhile, shares of fellow NAND flash-memory maker Sandisk $(SNDK)$ were off about 5% following the company's Wednesday evening earnings report.
SK Hynix's American depositary receipts $(SKHY)$ were also down 5%. And investors were reacting negatively to storage maker Western Digital's $(WDC)$ earnings, sending that stock down more than 10%.
While investors did not take kindly to Sandisk's softer-than-expected guidance for the September quarter, some Wall Street analysts said the company's focus on long-term durability via its new business model for supply agreements should set up strong earnings further down the line.
Micron is undergoing a similar shift that has won praise in the analyst community. The company also introduced a new model for long-term agreements in March, calling these strategic customer agreements, or SCAs, that can improve its visibility into demand and offer customers some assurances of supply.
Deutsche Bank analyst Melissa Weathers said Micron's "evolving business model" is one reason it's positioned so strongly in the memory market. Supply of both NAND and dynamic random-access memory remains tight, she said in a note, and artificial-intelligence demand is making the imbalance "more acute than past cycles."
In a tight supply environment, customers are likely to prioritize core memory capacity over storage since the latter can be added through pluggable components, Weathers said, citing a conversation with Micron executives. Therefore, memory systems have "a higher degree of inelasticity," she noted.
According to Micron's management, the SCAs, which are expected to account for about 40% of the company's memory volume, aim to reduce "the severity of shortage dynamics industrywide," Weathers said.
Micron's wide portfolio, from high-bandwidth memory to storage, has also given it "the luxury of growth without sacrificing profitability," Weathers added.
Investors are also underappreciating the growing share that memory has in a system's overall value, according to Weathers. With the advent of AI, that has shifted from 10% to almost 50%, she said.
In her view, Micron's products, its new customer agreements and the continuing supply-demand imbalance are likely to send earnings estimates higher.
-Britney Nguyen
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