Considering the Recent Drop in Micron Stock Prices, What's Wall Street's Suggestion for Potential Investors?
Considering the Recent Drop in Micron Stock Prices, What's Wall Street's Suggestion for Potential Investors?
Micron Technology (MU 0.31%) saw a significant surge of about 80% in early 2024, reaching an all-time high of $153.14, due to the strong adoption of its high-performance memory products in the data economy. Regrettably, the stock has experienced a decrease of nearly 32% from those highs.
Investors expressed disappointment with the company's fiscal 2024 third-quarter results (concluding on May 30), particularly the underperformance of AI sales in comparison to high expectations. Additionally, the overall semiconductor sector has been grappling with geopolitical and supply chain challenges, which negatively impacted investor sentiments toward Micron.
However, Micron's poor days might soon be a thing of the past. The company reported impressive fiscal 2024 fourth-quarter results (ending Aug. 29) in late September, surpassing analysts' estimates in terms of revenue and earnings. Micron has been benefiting from the escalating demand for memory and data storage products across various applications such as high-performance computing, autonomous driving, data analytics, and intricate AI models.
This demand can be seen in Micron's inventory of high-margin high-bandwidth memory (HBM) chips (a type of dynamic random access memory or DRAM chip), which is already sold out until 2025.
Wall Street holds a positive outlook on Micron. Out of the 44 analysts covering the company's stock, the median target price is $145.96, implying a potential rise of 40% from the current price. Given Micron's numerous strengths, it seems plausible that this target will be achieved. Here's why Micron is well-positioned to witness substantial growth in the near future.
Expanding memory demands at data centers
Data center server unit shipments are projected to increase in 2024, primarily driven by growing demand for AI and traditional servers. Data centers are also expected to replace old-generation servers with fewer modern traditional servers for performance improvements, higher energy efficiency, and improved space management.
Moreover, DRAM and NAND content in conventional and AI servers are on the rise to meet the memory requirements of intricate applications in sectors such as cloud computing, artificial intelligence, and 5G connectivity. These trends are highly advantageous for Micron's memory offerings.
Micron has successfully capitalized on this expanding opportunity. The company is investing heavily in advanced one-beta DRAM node technology as well as G8/G9 NAND process technology to enhance the production capacity of its high-margin DRAM offerings, like Double Data Rate 5 (DDR5), Low Power Double Data Rate 5 (LPDDR5), and HBM chips, as well as advanced NAND chips.
Additionally, Micron is working on the next-generation 1-gamma DRAM production technology that uses extreme ultraviolet lithography and plans to utilize it for volume production in 2025. Micron's investments in transitioning from older nodes to advanced nodes and AI-powered smart manufacturing capabilities have contributed to boosting yields for its high-performance memory chips.
Micron now anticipates that its HBM, DDR5, and LPDDR5 offerings, as well as data center SSDs (which rely on NAND flash memory), will generate multiple billions of dollars in revenue in fiscal 2025.
The superior technology of HBM chips
Micron estimates that the global HBM market will grow from $4 billion in 2023 to more than $25 billion in 2025. The company aims to secure a share of almost 20% to 25% of the HBM market by 2025. Although a relatively small market, HBM chips generate significant profits due to their high cost. With Micron, SK Hynix, and Samsung being the primary memory manufacturers targeting the HBM market, these chips enjoy substantial pricing power.
Micron has also successfully developed technologically superior HBM chips. The company's 12-high (12-high implies 12 memory layers being stacked together in the chip) output HBM3E chips consume nearly 20% less power while providing 50% more DRAM capacity than competitors' 8-high output HBM3E chips. This is a significant advantage since processors and DRAM chips account for a significant portion of power consumption at data centers.
Micron has signed long-term agreements with customers for its HBM chips and has already finalized prices for calendar 2024 and 2025. This has resulted in impressive revenue visibility for its HBM business. Micron has already generated several hundred million dollars in HBM revenue during the fourth quarter of fiscal 2024.
Furthermore, Micron is also developing next-generation HBM chips, including HBM4 and HBM4E. Given that HBM4 technology will offer customization possibilities, these products can differentiate Micron in the mass-produced memory market.
Investors are closely watching Micron's investment strategies in the finance sector, particularly its focus on advanced one-beta DRAM node technology and G8/G9 NAND process technology for high-margin DRAM and NAND chips. These investments could significantly boost Micron's revenue in the future.
Given the expanding HBM market, Micron's goal of securing a substantial share by 2025 could potentially attract more money into the company, providing a lucrative opportunity for those interested in investing in the finance sector.