$Micron Technology(MU)$ released its financial results for the third quarter of fiscal year 2024 after hours yesterday, corresponding to the performance up to May 30th this year, the stock price dropped by a whopping 7.98%.
Two Reasons
First, Micron expects fourth-quarter sales to be in the range of $7.4 billion to $7.8 billion, while the average analyst estimate is $7.58 billion, while some estimates are higher than $8 billion.
The second is that while the AI computing boom has boosted Micron, demand in traditional markets such as personal computers and smartphones remains sluggish, and the outlook suggests those areas are not recovering as quickly as some had hoped from last year's historic declines.
But is that really the case?
Looking at the revenue, Micron's FY24Q3 revenue was $68.1 billion, a year-on-year increase of 81.5%, exceeding the management's guidance of $64 billion to $68 billion and analysts' expectations of $66.7 billion.
The gross margin was 26.9%, close to the upper limit of the management's guidance range of 24%-27%. And earnings per share for FY24Q3 were $0.62 (non-GAAP), surpassing analysts' expectations of $0.5.
From this point of view, Micron's third-quarter results far exceeded expectations!
Looking ahead to the fourth quarter, Micron's revenue guidance exceeded the median analyst expectation. Comparing it to the highest prediction, it is obviously nit-picking!
The Real Reason
Moreover, the sluggish recovery in the PC and mobile phone markets isn't the real reason behind Micron's decline.
In the FY24Q3 financial report, Micron maintained its forecast of low single-digit growth in PC shipments and low-to-mid single-digit growth in mobile phone shipments this year, the same as in the previous quarter, with no downward revisions.
Besides shipment volumes, Micron benefits the most from rising memory prices. For example, in FY24Q3, Micron's DRAM shipments decreased slightly, but revenue grew 13% due to a 20% increase in prices.
So Micron's future doesn't hinge on a significant rebound in PC and mobile phone shipments. It depends more on how memory prices evolve.
According to the report, Micron expects the upward trend in memory prices to continue into next year.
Plus, with the introduction of AI-powered PCs and mobile phones, it is expected to drive shipments up, and AI PCs and mobile phones have just been launched, and next year is the time for them to show their power.
It's worth noting that AI PCs and mobile phones require much higher memory capacity than regular products, with AI PCs expected to have 40%-80% more DRAM capacity than ordinary ones!
In addition, Micron's stock has soared 66.8% this year, attracting investors flocking in, not because they're optimistic about a consumer electronics recovery, but because of AI.
HBM Product
In the third quarter of fiscal year 2024, Micron's HBM product revenue exceeded $100 million, and it's expected to reach hundreds of millions of dollars for the entire fiscal year.
Micron's HBM3e product is a crucial component for $NVIDIA Corp(NVDA)$ 's AI GPUs. In this field, $SK Hynix, Inc.(HXSCF)$ from Korea leads the way, but Micron's products have just been applied to Nvidia's GPUs, and are expected to contribute billions of dollars in sales in fiscal year 2025!
The HBM products are still evolving, and Micron expects to start mass-producing 12-layer stacked HBM3e products next year. And with HBM4e, Micron hopes to catch up with SK Hynix and $Samsung Electronics Co., Ltd.(SSNLF)$ .
More advanced products will bring higher profitability, and since the HBM capacity for this and next year is fully booked, it's even squeezing out capacity for other memory products. Micron predicts that the compound annual growth rate of HBM revenue in the next few years will be much higher than 50%!
With such strong demand, Micron plans to significantly increase capital expenditures, expecting them to reach 30% of sales in fiscal year 2025!
AI Trend
Overall, Micron is fully benefiting from the AI trend, which shows no sign of cooling down. Its revenue in fiscal year 2025 is expected to hit an all-time high!
Therefore, Micron's Q4 guidance is not a problem, the problem is valuation!
From the point of view of price-to-book valuation, Micron has hit a 10-year high:
From a price-to-sales valuation point of view, Micron is currently at 7.3 times, much higher than the historical average:
Analysts are predicting that Micron's sales in 2025 will hit $37.86 billion, and even then, its forward Price-to-sales stands at 4.2 times, which ain't too shabby!
With such high valuations, investors might be tempted to cash out even if the financial reports meet expectations. But the real question is, will Micron's share price go up again? Well, it all depends on whether memory prices will rise beyond expectations.
There's a rumor going around that Micron's rival Samsung is planning to increase the prices of their DRAM and NAND by 15% to 20% in the third quarter!
Morgan Stanley predicts that memory is headed for a new "super cycle," and the pricing power in the industry is getting stronger. With AI booming, there's going to be a mismatch between supply and demand for DRAM and HBM. By 2025, HBM is expected to be undersupplied by -11%, and the entire DRAM market could be undersupplied by -23%.
So, the good days of Micron are not over, or it is too early to speak at this time!
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