Micron technology(NASDAQ:MU) Share prices soared nearly 80% in early 2024, hitting an all-time high of $153.14 on solid adoption of high-performance memory products in the data economy. Despite this success, the stock is currently down nearly 32% from these highs.
Investors were disappointed with the third quarter fiscal 2024 (ending May 30) results, especially AI sales that fell short of high expectations. Additionally, the geopolitical and supply chain challenges facing the entire semiconductor industry also did not help overall investor sentiment for Micron.
Start your morning smarter! Wake up with Breakfast news in your inbox every market day. Register for free »
However, the difficult days can now be a thing of the past. Micron reported impressive results for the fourth quarter of 2024 (ending August 29) in late September, with revenue and profit exceeding analyst expectations. The company has benefited greatly from the explosive demand for memory and data storage products in various applications such as high-performance computing, autonomous driving, data analytics and complex AI models.
This is evident considering that the company’s high-margin high-bandwidth memory (HBM) chip inventory (a type of dynamic random-access memory, or DRAM, chip) is already sold out through 2025.
Wall Street is also bullish on Micron. Across the 44 analysts covering Micron stock, the average price target is $145.96, implying an upside of 40% from here. This seems like a plausible objective, given Micron stock’s many strengths. This is why Micron will rise well in the coming months.
The number of data center server units shipped is expected to grow in 2024, driven by increasing demand for AI and traditional servers. It is also expected that data centers will replace several older generation servers with less traditional, latest generation servers for performance improvements, higher energy efficiency and better space management.
Furthermore, DRAM and NAND content in conventional and AI servers is increasing to meet the memory requirements of complex applications in areas such as cloud computing, artificial intelligence and 5G connectivity. All of these trends bode well for Micron’s memory offering.
Micron is leading the way in capitalizing on these growing opportunities. The company is investing capital in advanced single-beta DRAM node technology and G8/G9 NAND process technology to increase the production capacity of its high-margin DRAM offerings, including Double Data Rate 5 (DDR5), Low Power Double Data Rate 5 (LPDDR5) and HBM chips, as well as advanced NAND chips.
In addition, Micron is working on next-generation 1-gamma DRAM manufacturing technology that uses extreme ultraviolet lithography and expects to use it for volume production in 2025. The company’s investments in transitioning from legacy nodes to advanced nodes and AI-powered smart manufacturing capabilities have helped boost yields for its high-performance memory chips.
Micron now expects its HBM, DDR5 and LPDDR5 offerings, and data center SSDs (solid-state drives using NAND flash memory) to bring in several billion dollars in revenue in fiscal 2025.
Micron estimates that the global HBM market will grow from $4 billion in 2023 to more than $25 billion by 2025. The company is targeting a nearly 20% to 25% share of the HBM market by 2025. Although HBM chips are a relatively small target market, they are expensive, which yielded more profits for Micron. Because Micron, SK Hynix and Samsung are the only three major memory manufacturers targeting the HBM market, these chips have significant pricing power.
Micron has also succeeded in developing technologically superior HBM chips. The 12-high (12-high means there are 12 memory layers stacked on top of each other in the chip) output HBM3E chips consume almost 20% less power while offering 50% more DRAM capacity than the 8-high-output HBM3E chips from the competition. This is a major advantage because processors and DRAM chips account for a significant portion of power consumption in data centers.
Micron has entered into long-term agreements with customers for its HBM chips and has already agreed on prices for the 2024 and 2025 calendar. This has resulted in an impressive view of revenue for its HBM business. The company has already earned hundreds of millions of dollars in HBM revenue in the fourth quarter of fiscal 2024.
In addition, Micron is also developing next-generation HBM chips, including HBM4 and HBM4E. Because HBM4 technology offers customization options, these offerings can also differentiate Micron in the mass production memory market.
Micron has reported robust results in fiscal 2024, with revenue growing 62% year over year to $25.1 billion and gross margin growing 31 percentage points year over year to 23.7%. The company also reported non-GAAP net income of $1.47 billion in fiscal 2024, a dramatic improvement from a loss of $4.86 billion in the previous year.
The company also has a strong balance sheet with $9.2 billion in cash and investments and $13.4 billion in total debt.
Micron has resumed its share buyback program (which was suspended two years ago) in light of improving industry conditions. The company repurchased $300 million worth of stock in the fourth quarter.
Despite its many strengths and improving financials, the stock trades at 4.6 times sales, far lower than the majority of semiconductor players. With Micron now working to differentiate its memory offering coupled with a dramatic increase in demand, the company could soar significantly higher in the coming months.
Consider the following before purchasing shares in Micron Technology:
The Motley Fool stock advisor The analyst team has just identified what they think is the 10 best stocks for investors to buy now… and Micron Technology wasn’t one of them. The ten stocks that survived the cut could deliver monster returns in the coming years.
Think about when Nvidia created this list on April 15, 2005… if you had $1,000 invested at the time of our recommendation, you would have $870,068!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including portfolio building guidance, regular analyst updates and two new stock picks per month. TheStock Advisoris on duty more than quadrupled the return of the S&P 500 since 2002*.
View the 10 stocks »
*Stock Advisor returns November 11, 2024
Manali Pradhan has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
Should You Buy Micron Stocks After the Dip? Wall Street has a clear answer for investors. was originally published by The Motley Fool
