Micron Technology: A Potential AI-Driven Growth Stock Amidst Industry Challenges

Micron: This Chronically Undervalued Stock Is A Strong Buy (NASDAQ:MU)

On the back of the memory cycle upswing, driven by increasing HBM sales, Micron is a Strong Buy. Micron Technology (NASDAQ:MU) shares have had a rough few months over fears that the memory upcycle may be stalling, and that AI demand could slow, which has led to a 40%+ selloff from 52-week and all-time highs. After spending much of fiscal year 2023 underwater (negative EPS in each quarter) due to low average selling prices from a memory supply glut, the last thing the company needs is a market shock to derail the ongoing recovery we have witnessed so far in FY2024. However, I think the memory upswing is very much still on track and that, on the back of this trend and the company's continued success in high-bandwidth memory ("HBM"), this chronically undervalued stock is a Strong Buy. It has been quite a while since I last covered MU, back in 2018 in fact. In that last article I argued, much like I will argue in this one, that a memory cycle upswing was just getting started and that the time to buy was now (well, then). That article can be read here. When it was published, the stock was trading around $40 per share, after which it went up to $60 a month later. Results can never be guaranteed, of course, but I'm seeing many of the same signs now that I did for that previous cycle, namely that Micron's operating results have reached an inflection point, memory prices are recovering, and all of the main memory players are seeing margin improvements. Let's first begin by discussing the cyclicality of MU and how it has historically impacted the stock price. As most investors are aware, Micron is a cyclical company because memory is a cyclical business with the following general stages: 1) SK Hynix, Samsung, and Micron produce chips (DRAM and NAND) to satisfy demand and make lots of money. 2) Demand eventually drops, leading to supply outpacing demand. Prices fall. 3) Memory makers continuing producing chips at lower margins to retain market share. Profits fall. 4) Demand eventually picks back up, the oversupply clears, and prices/profits begin to rise again. Micron stock tends to rise as memory demand strengthens and fall when it wanes: As we can see from the 10-year chart, the stock price tends to peak just before trailing twelve months revenue peaks, after which the price tails off as the down cycle begins. In the same vein, the stock tends to inflect back upwards before revenue troughs. The current cycle has been a bit rougher around the edges because of the AI frenzy, but from the most recent quarterly results (81% YoY revenue growth) and projections for Q4 2024 (90% YoY growth), we can clearly see that sales have begun their rebound from cycle lows. The historical correlation of cyclical operating results and stock price would indicate that MU will rise in the coming quarters as financial performance improves and revenue growth rapidly increases off the previous cycle's lows. However, not all cycles are created equal and historical analysis can only tell us so much. Part of MU's recent woes have been concerns over whether the current upward trajectory of this cycle is slowing already. Just last week, Micron was downgraded by multiple analysts, with one citing an expected temporary slowdown in non-HBM (PC/smartphone) demand and the other citing an expected oversupply of HBM chips in 2025. While an oversupply of HBM seems unlikely due to the ongoing strong GPU demand for AI applications, including the launch of Nvidia's (NVDA) Blackwell and AMD's (AMD) MI325X this quarter, concerns over a short-term slowdown in consumer memory sales appear more well-founded. In Q3, Micron reported an increase of about 20% QoQ in NAND ASPs, but with a slight decline in bit shipments. TrendForce is projecting NAND ASPs to increase again next quarter, but for bit shipments to decline by about 5%. Typically, memory upcycles consist of a combination of increased ASPs in addition to increased bit shipments, so this is a slight concern, especially with 30% of Micron's revenue derived from NAND sales. However, this is a small blip in what is likely to be a multi-year upswing as a near-term slowdown in consumer memory products is offset by expected increases in server and enterprise SSD demand. As mentioned earlier, a significant driver of the memory upswing will be DRAM demand, specifically HBM. While the market is still in its relative nascency, a bit growth is expected to increase significantly due to continued demand for AI applications. Here's a snapshot from back in March of HBM's progression: By the end of 2024, HBM will likely make up a fifth of total DRAM revenue share, or close to $17 billion on an annual basis, and its impact on Micron's operating results is still relatively minimal compared to what we'll see in 2025. I think this excerpt from the company's Q3 earnings presentation provides interesting and bullish context: Our HBM shipment ramp began in FQ3, and we generated over $100M in HBM3E revenue in the quarter, at margins accretive to DRAM and overall company margins. We expect to generate several hundred million dollars of revenue from HBM in FY24, and multiple $Bs in revenue from HBM in FY25. We expect to achieve HBM market share commensurate with our overall DRAM market share sometime in CY25. Our HBM is sold out for CY24 and CY25, with pricing already contracted for the overwhelming majority of our 2025 supply. Micron is expecting the ramp of HBM to provide rapid growth and expects to capture HBM market share in a similar proportion to its current general DRAM market share, which depending on the estimate is probably around 20-25%. With most of the company's HBM capacity already sold out for 2024 and 2025, it seems unlikely that the supply glut for these highly coveted chips, predicted by one of the aforementioned analysts that downgraded the stock, will come to pass. Further, not only are many more chips being sold with HBM memory, but each successive generation of GPU accelerator, for example, crams more memory on each chip. Nvidia's H100 and H200 GPUs have 80GB of HBM3 and 141GB of HBM3E, respectively, while the upcoming B100 and B200 will have 192GB of HBM3E, with a likely memory upgrade to ~270GB in 2025. Not to be outdone, AMD's MI300X has 192GB of HBM3 and its upcoming Q4 release, the MI325X, will have a whopping 288GB of HBM3E. Whatever the outcome of the AI wars, Micron wins. A final added benefit of HBM is that the high sell price allows for higher margins as well. As Micron ramps up sales and HBM becomes a greater share of the product mix, margins will increase across the board. Micron made the daring decision to mostly skip volume production of vanilla HBM3 and to instead focus on ramping HBM3E in order to front-run SK Hynix and Samsung, which resulted in success as the company was able to secure partnership with Nvidia for their upcoming processors. As the HBM market continues to grow, Micron has positioned itself as a major player. As these headwinds and tailwinds converge, Micron is set to report fourth quarter earnings next week. SK Hynix and Samsung won't be reporting for another month, so this report will give us more concrete insight into how the memory market has been fairing the last couple of months. Here are my primary expectations: And here are, in my opinion, the most important things to watch for: It seems from the multitude analyst downgrades that they are expecting the answer to both those questions to be bearish. Considering this is just the beginning of a memory upcycle that will likely last multiple years, I expect any demand weakness to be transitory and for DRAM demand, and HBM specifically, to buoy results in the meantime. But interested investors should focus on the above questions while reading the upcoming earnings report for indications of demand strength or weakness going forward. Additionally, the cyclicality and unpredictability at play here should not be discounted by investors. MU has already swung wildly this year, and these swings might not be over just yet. There is always the risk that consumer memory demand could remain weak for the foreseeable future, leaving enterprise sales to do most of the heavy lifting. In such a scenario, any enterprise slowdown would constitute a fairly substantial demand shock to Micron and other memory makers, driving the share price down. In a similar vein, Micron is also susceptible to a recession scenario in which demand falls suddenly, and the memory cycle upswing is cut short. This would be especially painful since the most recent downswing essentially just ended and the company's financial position hasn't yet recovered. I don't expect to see continued weakness in consumer memory demand or a recession, but these are risks investors should be aware of nonetheless. Historical analysis of previous memory cycles indicates that MU is likely to rise in the coming quarters as the company rebounds from a deep trough in the wake of the previous cycle's downswing. After a dismal 2023, operating results are finally recovering, making now a solid time to buy. On the back of ramping HBM sales to premier customers like Nvidia, Micron is well-positioned to ride this memory upcycle, and the AI wave, higher. For these reasons, I consider MU a Strong Buy for those with short-term investing horizons. The stock has a forward P/E ratio of around 9, which is much more attractive than the S&P 500's average of 22, likely due to investor concerns over cyclicality. An analysis of P/B and P/E ratios shows that relative to other AI stocks and tech stocks, Micron is currently valued at a discount: Despite the improving memory market and Micron's success in breaking into HBM and gaining market share, the stock is being priced like there's an imminent risk to investors. From my analysis in this article, I don't believe that to be the case. This valuation coupled with growing revenue, margin expansion, and brightening market conditions makes Micron an attractive value play in my opinion. On the back of exploding HBM revenue, Micron will likely see record revenue in FY2025, providing a market wary of cyclicality with data demonstrating that these fears are overblown. For those with long-term investing horizons, I would also consider the stock a Strong Buy with the caveat that the cyclicality of the stock can cause significant volatility, so those with a low-risk tolerance might want to look elsewhere.

Micron Stock: Don't Miss Another Opportunity (NASDAQ:MU)

Micron (NASDAQ:MU) stock has experienced elevated volatility lately along with other chip-making companies like Nvidia (NVDA), AMD (AMD), and Intel (INTC). From its June highs, MU is now down almost 50% without any particular news surrounding the company. Meanwhile, Micron's prospects remain increasingly positive in light of continuing AI-driven demand, and the falling stock price seems to diverge from the improving fundamentals. Therefore, as MU is scheduled to report its earnings in the coming weeks, now might be a rare opportunity to buy the stock with a solid margin of safety. While some people might be skeptical about the actual monetization of AI products and services, there is no doubt AI is here to stay. All the major companies like Google (GOOG)(GOOGL) with its Gemini AI, Microsoft (MSFT) with its Copilot, and Apple (AAPL) with Apple Intelligence are integrating AI solutions into consumer products with billions of users, which inevitably pushes the need for more infrastructure to process and store data. Hence, the global AI infrastructure market is forecasted to reach at least $323 billion by 2032, growing at a hefty 27% CAGR during the forecast period. And seeing the current trend of how increasingly more complex AI models are becoming available for more users, I believe the actual numbers might surpass the forecast. This growing infrastructure requires significant memory, especially high-bandwidth memory (HBM), and storage capacities to handle the increasing volumes of data, which means Micron is pretty much set to benefit from this trend. During the latest earnings call, Micron CEO Sanjay Mehrotra mentioned the company sees a multi-year AI demand cycle ahead of it. We are in the early innings of a multi-year race to enable artificial general intelligence, or AGI, which will revolutionize all aspects of life...These trends will drive significant growth in the demand for DRAM and NAND, and we believe that Micron will be one of the biggest beneficiaries in the semiconductor industry of the multi-year growth opportunity driven by AI. This upcycle seems to be unprecedented and is likely to sustain positive pressure on memory pricing as well. As an indicator, South Korea-based SK Hynix is already hiking their DRAM pricing by 15% to 20%, and Micron and Samsung (OTCPK:SSNLF) are reported to follow suit. As a refresher for some readers, the memory market is highly cyclical in terms of demand and pricing, which directly affects companies like Micron, especially when it comes to revenue growth and profitability. And looking at the YoY revenue growth chart, Micron seems to be at the beginning of an unprecedented upcycle that started with a substantial 81.5% revenue growth in FQ3 2024. Historically, Micron's stock has followed a cyclical pattern, rising and falling in line with the volatility of memory prices. As memory prices increased, Micron's revenue and stock price typically surged, and vice versa during downturns. However, this year so far, we have seen an unusual divergence from this historical trend. Despite a significant increase in revenue growth, driven by growing demand, Micron's stock has dropped nearly 45% from its highs and remained flat year-to-date. This disconnect between fundamentals and stock performance suggests that the market is not fully pricing in the opportunities in the AI infrastructure and general memory markets that will inevitably drive future growth. The potential for margin expansion is particularly notable, as the company's HBM offerings are set to see increasing adoption in AI-driven data centers. (You can read more about HBM's impact on margins in another Seeking Alpha article here) During the recent earnings call, the management mentioned Micron's HBM memory is already "sold out" for the next year: We expect to generate several hundred million dollars of revenue from HBM in fiscal 2024 and multiple billions of dollars in revenue from HBM in fiscal 2025. Our HBM is sold out for calendar 2024 and 2025, with pricing already contracted for the overwhelming majority of our 2025 supply. We are making significant strides toward expanding our HBM customer base in calendar 2025, as we design-in our industry-leading HBM technology with major HBM customers. Therefore, the current undervaluation creates a compelling opportunity for investors. Micron appears to be at the beginning of a multi-year upcycle, with strong revenue and profitability drivers ahead, yet the stock remains significantly discounted. To better understand the stock's valuation and growth potential, we can use DCF analysis. My analysis is based on the following key assumptions: 1. The average annual revenue growth over the horizon period of five years is estimated to be around 27%, with a 53% increase in FY2025, 17% growth in FY2026, 0% growth in FY2027, and a 5% increase in FY2028. This is based on analysts' earnings estimates and adding a fraction of potential AI-driven growth in 2027. 2. EBITDA margin will remain on the level of 25-50% throughout FY2028, in line with the historical fluctuations. 3. Then goes the WACC. The after-tax cost of debt is 4.6% (using a 13% tax rate), based on the latest 10-Q filing. The cost of equity capital (13.6%) is calculated using CAPM, with 1.18 beta, a 3% risk-free rate, which is about 50 basis points lower than the current U.S. 10-year bond yield to reflect future rate cuts, and a 9% market premium. The WACC is, therefore, estimated to be around 12.8%. Here is the operating and balance sheet data used in the modeling: As a result of these calculations, MU's fair price range is approximately $113-128, which is about 30% higher than the current stock price. This price range assumes that MU will return to its average EV/EBITDA ratio of 14 by the end of the horizon period. Currently, the stock trades at around 18 EV/EBITDA. As a result, the current low valuation presents a rare chance to enter Micron's high-growth phase with a margin of safety, especially considering that memory demand is set to rise as AI and advanced computing continue to scale. Analyzing MU's performance versus its peers, the stock looks oversold as well. Year-to-date, Micron's direct competitors in the storage market, Western Digital (WDC) and Seagate (STX), are up around 20%, and the main AI hardware player Nvidia is in another league with a 118% growth year-to-date. Meanwhile, MU trades flat on a YTD basis despite demonstrating about 2 times higher revenue growth than STX or WDC. While some degree of conservatism around the AI hype might be understandable, Micron deserves a more significant stock appreciation based on the company's strong performance this year. Micron is set to report its FQ4 earnings on September 25. Analysts project $7.66 billion in revenue, which would represent a 91% increase year-over-year, and $1.11 in EPS, almost 2 times higher than in the previous quarter. It is likely Micron will exceed these expectations, based on the recent history -- the company beat on EPS and earnings in the last 5 quarters in a row. However, the recent earnings season has shown that the market's expectations for AI-related companies are increasingly high, which means just beating analysts' estimates is not enough anymore. The examples are Nvidia, AMD, Snowflake (SNOW), Alphabet, and Amazon (AMZN), whose stocks went down significantly after earnings despite double beats and solid revenue growth numbers. (Amazon did miss on revenue, according to Seeking Alpha data, but showed a more significant beat on EPS) Therefore, even if Micron exceeds the market's expectations, it does not mean that the stock will immediately return to its recent highs. From there, much will depend on Micron's guidance. Currently, the consensus revenue estimate for FQ1 2025 (November quarter) is $8.41 billion, which would reflect a 78% year-over-year increase. EPS is estimated to be $1.66 for the first quarter of the next fiscal year. For the full fiscal 2025, the market expects $38.24 billion in revenue, a 53% increase YoY, and a $9.38 EPS, or a 670% increase from projected 2024 numbers. If the company guides for lower numbers there, MU might continue its drop even despite its generally impressive fundamental performance and the stock's undervaluation. Another development to watch for is Micron's commentary regarding DRAM and NAND output for PC and smartphone customers. During the Q3 earnings call, the management mentioned these customers had built additional inventories in anticipation of tighter supply, which might create negative pressure on demand in the mid term. The key indicators here are inventories, which amounted to $8.5 billion in the recent quarter, and margins -- Micron's gross margin was 28% in Q3, and the company's projection for Q4 is 34.5%. Additionally, investors should keep an eye on Micron's balance sheet dynamics, specifically the cash/debt ratio. In the latest quarter, the company had $11.2 billion in long-term debt and $8.38 billion in cash and equivalents, which is a relatively safe ratio. Meanwhile, the company expects CapEx in fiscal 2025 to be "meaningfully above" the levels of 2024 to support HBM assembly and construction of new US-based fab and backend facilities. Even though a large share of the investments needed for these facilities is offset by the state incentives and the CHIPS grants, Micron will still require substantial investments next year. This might potentially create a need for additional borrowing, which could deteriorate Micron's financial profile. Micron stock has experienced significant volatility this year, falling nearly 50% from its June highs despite no major negative news, which contrasts with improving fundamentals. The company should benefit significantly from the surging demand for AI- and data-focused infrastructure, which is expected to grow rapidly over the coming years. Therefore, Micron seems to be in the early stages of a multi-year upcycle driven by AI, and demand for high-bandwidth memory should significantly boost revenues and margins in the coming years. Despite the strong fundamentals and the ongoing memory upcycle, MU's price has remained under pressure, which creates a rare opportunity to buy the stock with a solid margin of safety. This is supported by the DCF analysis, which shows MU is at about 30% undervalued at the moment. Even though there are certain risks associated with the upcoming earnings report, now might be a perfect opportunity to buy the stock.

Micron's Secret To AI-Driven Growth (NASDAQ:MU)

MU's RSI at 37 indicates it's nearing oversold territory, while Fibonacci retracement levels suggest a potential bullish reversal if price trends hold. With the increasing demand for AI and data centers, Micron Technology (NASDAQ:MU) is well-positioned for long-term solid growth. The recent performance underlines that Micron manages its ups and downs with robust recoveries and expansion in key segments. Micron's laser focus on advanced memory technology and strategic pricing improves its competitive advantage, and improvements in operations drive profitability. As AI adoption accelerates, along with higher demands for high-performance memory by data centers, Micron is poised to capitalize on these trends. Micron's fiscal Q3 2024 had strong growth, with top-line exceeding expectations (beat by $136 million). The company had $6.8 billion in top-line growth with a 17% sequential boost and an 82% YoY surge. This growth is derived from favorable industry trends, strategic pricing, and a strong product mix. Similarly, the sequential revenue increase is vital, considering seasonal demand fluctuations common in the semiconductor industry. The YoY growth of 82% indicates a significant turnaround from the previous year and highlights a recovery in market conditions. Breaking down revenue, Micron's DRAM segment contributed $4.7 billion, 69% of total revenue. This segment grew by 13% sequentially based on a 20% price rise. The bit shipments saw a mid-single-digit percentage decline, yet higher prices boosted revenue. The price increase points to Micron's sharp pricing strategies in a favorable market. Meanwhile, the NAND segment contributed $2.1 billion, about 30% of total revenue. The NAND revenue rose 32% sequentially, with bit shipments rising in the high single digits. Lastly, prices increased by 20%, indicating strong demand for NAND products. Toward the bottom line, Micron's gross margin reached 27%, with an over 7-percentage-point improvement sequentially. This margin expansion was derived from higher pricing, better product mix, and cost reductions. Without inventory write-downs from fiscal Q2, the gross margin improvement would have been 15%, indicating enhanced profitability and sharp cost management. As a result, operating income was $941 million, with an operating margin of 14%. This represents a 10% sequential increase and a 53% improvement from the prior year. Hence, the improved margin reflects Micron's operational edge and cost control, contributing to profitability. Moreover, Micron's adjusted EBITDA was $2.9 billion, which led to an EBITDA margin of 43%. This margin improved by 6% sequentially and 3% YoY. The substantial EBITDA margin highlights Micron's progressive execution of its business strategy. Pricing, cost management, and product mix optimization led to this improvement. The semiconductor industry is recovering at the macro level, which has helped the growing demand for data center products and AI advancements. AI demand has driven rapid growth, especially in the data center segment. Micron saw a 50% sequential increase in revenue from this segment, driven by AI-related products. These include high bandwidth memory (HBM) and data center SSDs, which are high-margin items. Looking ahead, Micron expects continued growth in the data center segment. It anticipates record levels of data center revenue in fiscal 2024 and strong growth in fiscal 2025. AI-driven demand and higher-margin products will drive growth in the top and bottom lines. The rise of AI PCs and smartphones may boost demand in the PC and smartphone markets. Finally, new generations of AI products will accelerate PC replacements and increase the need for high-performance memory. Micron's investment in advanced tech leads in DRAM and NAND development. More than 80% of DRAM production occurs on 1-alpha and 1-beta nodes, and over 90% of NAND production uses these advanced nodes. These transitions boost performance and cost-efficiency, positioning Micron competitively. The 1-alpha node improves power efficiency, density, and overall performance. The 1-beta node will further improve those aspects above, further consolidating Micron's strength in the DRAM marketplace. In NAND, the focus is on advanced solutions such as the 232-layer NAND. Thus, this technology has tripled bit shipment and could continue to capture rising demand for high-capacity storage. Nevertheless, Micron's technology roadmap indicates that the company is working toward continuous advancements in both its DRAM and NAND units. It is expected that 1-alpha DRAM, fabricated on EUV lithography technology, may be volume-produced as early as 2025. This new generation of memory will be much faster than the current one. In addition, the next-generation NAND node arriving in 2025 would offer even greater storage. Manufacturing investments also reveal Micron's long-term intentions. For instance, the fiscal 2024 CapEx plan is $8 billion and focuses on expanding infrastructure and technology. The company aims to allocate around 30-35% of revenue to CapEx in 2025, which includes investments in HBM assembly, fabs, and technology transitions. Lastly, Micron is also building new manufacturing facilities like Greenfield fabs in Idaho and New York to ensure long-term competitiveness. These facilities will support long-term top-line growth, but won't impact bit supply until fiscal 2027. Micron's investments in leading technology and infrastructure may improve the company's share in the memory market. Overall, based on these developments, the street has extremely positive estimates for revisions in the upcoming fiscal years. There are 27 EPS upward revisions and only two downward ones. Similarly, revenue estimates have 29 upward revisions against one downward. For Q4 fiscal 2024 (Non-GAAP), the company may beat both EPS normalized ($1.12) and revenue estimates ($6.67 billion) based on a surprising history of 12 months (4 out of 4 EPS beat) and the company's guidance (EPS = $1.08 ± $0.08). MU is currently trading at $91, with the stock's average price target for 2024 set at $102. This aligns with the Fibonacci 0.618 retracement level, often a critical point for reversals for a potential bullish rebound if the stock approaches this target. On the optimistic side, the price target is $117, aligned with the 0.382 Fibonacci level, indicating stronger upside potential. Conversely, the pessimistic price target of $72 matches the 1 Fibonacci level and is often viewed as a full retracement and indicative of a deeper correction. These targets are derived from short-term price trends projected along Fibonacci levels. Moreover, the RSI currently stands at 37, which indicates MU stock is approaching oversold territory. However, no bullish or bearish divergence is present. The downward trend in the RSI suggests continued selling pressure, and a potential long setup emerges at the 30 RSI level that may lead to a possible bottom for a future rebound. The Volume Price Trend (VPT) is also trending downward. The VPT line is currently at 277 million compared to a moving average of 297 million, which indicates a bearish price-volume relationship. However, if the VPT hits its moving average back, signaling a possible bottom, this points to a potential long setup. Micron's growth is influenced by demand for PCs, smartphones, and data centers. Fluctuations in these markets can impact its growth sustainability. The company expects moderate growth in AI-related PCs and smartphones. The PC market is forecasted to grow at low single-digit rates, and smartphone volumes are projected to increase by low to mid-single-digit percentages. Any challenges or slowdowns in these areas could affect Micron's revenue and market share. Micron's focus on data center products driven by AI demand creates opportunities and risks. While AI-driven demand is robust and effective, supply management is critical, as inventory imbalances can harden companies' bottom lines. Similarly, fluctuations in AI-related demand or competition could impact Micron's market share and growth in the mid-term. However, normalizing customer inventories and interest in long-term agreements are positive signs. Micron's forward P/E ratio (non-GAAP) is 75, much higher than the sector median of 23, indicating massive overvaluation relative to sector peers. Analyst estimates for Micron's fiscal 2024 EPS are $1.22. By 2025, EPS is expected to rise to $9.41 with a 668.27% growth. EPS for 2026 may reach $12.53, with a growth of 33.11%. These bottom-line estimates and P/E ratio point to high variability in the mid-term. With leading-edge DRAM and NAND developments, MU is ready to reap benefits from AI and data center product demand. While the PC and smartphone markets have cyclically weakened, Micron's strategic pricing, technological edge, and concentration on AI-infused memory solutions lay the bedrock for solid multiyear growth.

Micron Stock: Industry Tailwinds Vs Tough Competition (NASDAQ:MU)

Micron is a semiconductor company focused on memory and storage products. My analysis in this article will focus on on-demand themes in Micron's key product segments. Hence, it is useful to get a basic understanding of each product category: This refers to memory that is stored temporarily when the device's power is on. The technical term for this kind of temporary memory is 'volatile' memory. This memory retrieval is typically fast. For example, running browser applications on your computer uses DRAM memory. NAND Flash is a non-volatile memory, which means it stores data even when the device's power is turned off. For example, data stored on your mobile phone's SD card or USB stick would use NAND Flash memory. SSDs are storage devices that uses NAND Flash memory. They are a faster alternative to hard drives. For example, many modern laptops have SSDs installed, which lets them boot up a lot faster in seconds as opposed to minutes in older computer and laptop models. This type of memory enables quick access to large amounts of data in a power-efficient way. It is designed for high-performance applications such as modern gaming applications and 3D rendering. For example, NVIDIA's GeForce RTX 3090 graphics card uses HBM to rapidly process and render high-resolution graphics in real-time. Micron is coming out of a tough industry oversupply situation and is set to reap the rewards of industry tailwinds. However, its competitive positioning may not be improving: The global DRAM market grew an impressive 24.8% QoQ to hit $22.9 billion in revenues in Q2 CY24. This was driven by both increased shipments and higher average selling prices. These industry tailwinds are expected to continue since DRAM manufacturer's Q3 CY24 contract price negotiations with PC OEMs and cloud service providers have exceeded expectations. For example, industry research from TrendForce has upped Q3's price hike forecasts from +8% to 13%. As a major DRAM market player, Micron is benefiting from these trends. However, it is not to the same extent as its peers (Samsung (OTCPK:SSNLF) and SK Hynix (OTCPK:HXSCF)) due to lower shipments volume. This is visible in the market share loss QoQ from 21.5% to 19.6%: Based on this data, out of Micron's total Q2 FY24 revenues of $6.8 billion, the implied DRAM revenue share is 66%. In other words, in its majority segment, Micron is benefiting from industry tailwinds but underperforming peers. The implied DRAM revenue share of 66% here is not too different from the 69% revenue mix disclosed in Micron's DRAM segmental breakup. The slight difference in the figures would be mainly due to timing differences (Micron's fiscal year ends in August, hence Q2 ends in May rather than June). Q2 CY24 saw a slight decline to flattish volumes in the NAND Flash market due to higher customer inventory levels, particularly with PC and smartphone OEMs. However, average selling prices increased by 15% driven by strong demand from AI-related demand for high-capacity storage products. For the Q3 CY24 outlook, revenue growth is expected to moderate at 0-5% QoQ as volumes are expected to fall 5% with the balance 5-10% driven by pricing increases. Micron's market share here is stable. Based on this data, Micron's NAND Flash revenues make up 29% of the overall revenue mix. So for a good chunk of Micron's portfolio, the revenue outlook is flattish to a modest 5% increase. The implied NAND Flash revenue share of 29% here is not too different from the 30% revenue mix disclosed in Micron's NAND segmental breakup. The slight difference in the figures would be mainly due to timing differences (Micron's fiscal year ends in August, hence Q2 ends in May rather than June). The SSD market is growing handsomely, driven equally by both volume and pricing growth. The key demand drivers are increased spends from North American cloud service providers (Amazon (AMZN), Microsoft (MSFT), Google (GOOGL) (GOOG)) for servers in data centers. The Q3 CY24 outlook is positive as these demand patterns are expected to lead to a 5% QoQ increase in volume. Pricing is a bigger tailwind, as it is expected to contribute another +15% QoQ driven by supply shortages. Micron is a modest beneficiary here as it has been gaining share QoQ from 9.9% to 13.6%: Based on this data, SSD revenues make up 11.5% of Micron's overall revenue mix - a smaller portion relative to other key product categories. Micron's key memory market peers include Samsung Electronics, SK Hynix, Western Digital Corporation (WDC) and Kioxia. Out of these, the former 3 are listed companies. Kioxia is expected to be a listed peer soon, as it has made an IPO application in the Japanese market. Relative to its relevant peers, Micron trades at a P/B of 12.2x; a 109% premium to the average of 5.8x. Given its lagging industry position in its major business segment, I deem this to be pricey on a relative basis. I did not opt for the usual P/E multiples analysis, since Micron's business earnings are not at a stable state yet. The past few years have seen negative earnings arising from negative margins even at the gross level as a result of massive oversupply in the memory market: If this is your first time reading a Hunting Alpha article using Technical Analysis, you may want to read this post, which explains how and why I read the charts the way I do. All my charts reflect total shareholder return as they are adjusted for dividends/distributions. On the relative technical analysis of Micron vs. the S&P500 (SPY) (SPX), the ratio prices are in an overall 12-monthly uptrend, but are ranging sideways on the 4-monthly chart. Over the past 3 quarters, there has been a false breakout above a major 4-monthly resistance level, marking the top of the range. As a result, I anticipate some ranging action followed by a move back down toward the bottom of the 4-monthly range to gather fresh buyers to trigger a sustained move up and hence outperformance over the broad market index. NVIDIA's (NVDA) H200 is a graphics processing unit (GPU) specifically for generative AI and high-performance computing applications. This is the first GPU to use HBM3e, which is the latest generation of HBM. NVIDIA's Blackwell chips, which I expect will roll out starting early CY25, will also utilize HBM3e. This can provide a demand and market share gain tailwind for Micron and SK Hynix, as they have been the first movers in qualifying for HBM3e. Micron's financials have had a tough 2023 due to supply glut related inventory corrections. But that is mostly over now and the company is set to benefit from a demand rebound, particularly in DRAM, SSD and HBM3e products. However, relative to its major memory market peers, Micron's competitive positioning may not be improving overall as Samsung and SK Hynix are taking away share in major segments. Moreover, Micron's P/B trades at a hefty 109% premium to the average P/B of 5.8x, which I believe reduces the margin of safety for buys. Technically, relative to the S&P500, I lean bearish to neutral on Micron stock as it reacts off a false breakout of the 4-monthly resistance. Rating: 'Neutral/Hold' Strong Buy: Expect the company to outperform the S&P500 on a total shareholder return basis, with higher than usual confidence. I also have a net long position in the security in my personal portfolio. Buy: Expect the company to outperform the S&P500 on a total shareholder return basis Neutral/hold: Expect the company to perform in-line with the S&P500 on a total shareholder return basis Sell: Expect the company to underperform the S&P500 on a total shareholder return basis Strong Sell: Expect the company to underperform the S&P500 on a total shareholder return basis, with higher than usual confidence The typical time-horizon for my views is multiple quarters to more than a year. It is not set in stone. However, I will share updates on my changes in stance in a pinned comment to this article and may also publish a new article discussing the reasons for the change in view.

Prediction: 1 Top Growth Stock Down 40% That Could Start Skyrocketing After Sept. 25 | The Motley Fool

A solid set of results later this month could help this semiconductor stock rise once again. Memory demand has been booming in 2024 as semiconductor companies, smartphone original equipment manufacturers (OEMs), and personal computer (PC) makers look to get their hands on compute and storage memory chips to churn out more artificial intelligence (AI) processors, generative AI smartphones, and AI-enabled PCs. As a result, the top and bottom lines of Micron Technology (MU -4.43%) are now growing at a breathtaking pace. However, the same cannot be said for the stock. Micron stock hit a 52-week high on June 18, but it has slid 40% since then despite delivering stellar financial results. The stock's slide over the last three months can be attributed to the overall negativity in the semiconductor space -- the PHLX Semiconductor Sector index has pulled back 16% during this period. The sector was hit by multiple headwinds, including potential trade restrictions on shipping equipment to China, uncertainty surrounding the U.S. election, and concerns about the health of the U.S. economy. Despite the perceived headwinds, the quarterly results for other key semiconductor companies like Nvidia, Marvell Technology, and Broadcom have been solid of late and topped already lofty expectations from Wall Street. It won't be surprising to see Micron Technology follow in the footsteps of its peers when it releases its fiscal 2024 fourth-quarter results on Sept. 25. Let's look at the reasons why. According to market research company TrendForce, the dynamic random-access memory (DRAM) industry's revenue increased 25% quarter over quarter in the second quarter of calendar 2024. TrendForce adds that all industry players, including Micron, witnessed an increase in shipments during the quarter. More importantly, the average selling price (ASP) of DRAM also increased as demand outpaced supply. Micron Technology guided for $7.6 billion in revenue for fiscal Q4 (which ended in August). That would translate into a sequential jump of 12%. However, TrendForce's estimate that the DRAM industry grew at a much faster pace than that on a sequential basis suggests that Micron could deliver stronger growth when it releases its results later this month. On a year-over-year basis, Micron's revenue guidance points toward a jump of 90%. The company's adjusted earnings estimate of $1.08 per share would be a huge improvement from the loss of $1.07 per share it incurred in the same quarter last year. However, we have already seen that Micron may be able to exceed its guidance because of the stronger estimated growth in the DRAM industry. On the other hand, TrendForce points out that the price of NAND flash storage memory kept rising in the second quarter of 2024, leading to a 14% sequential jump in revenue. The good news for Micron investors is that memory prices are expected to head higher in the third quarter as well. More specifically, an increase of 8% to 13% is expected in DRAM prices in the current quarter. Meanwhile, NAND flash average selling prices are likely to increase by 5% to 10% quarter over quarter in Q3. So, Micron seems set to deliver healthy guidance as well as solid results later this month. Analysts expect the company's revenue in the first quarter of fiscal 2025 (which has just begun) to hit $8.55 billion, which would be a 12.5% sequential increase over the previous quarter. The potential increase in DRAM and NAND flash prices indicates that Micron's guidance could indeed be as strong as analysts expect. The significant pullback in Micron Technology stock in the past three months is the reason why it is trading at a really attractive 4.5 times sales and 10 times forward earnings. Considering the elevated levels of growth that this semiconductor stock delivers, buying it at its current valuation is an opportunity investors should not miss, especially considering how fast its earnings are forecast to grow over the next couple of years. Even better, Micron may be able to sustain its healthy growth for a longer period as the global memory market is forecast to generate $360 billion in revenue in 2029, compared to $136 billion in 2022, according to Fortune Business Insights. So, investors are getting a great deal on a stock that could not only deliver impressive growth in the near term, but also remain a solid long-term bet because of the favorable prospects of the memory industry. That's why they would do well to buy Micron stock while it trades at attractive levels, as a potential beat-and-raise quarterly report on Sept. 25 could spark a bull run.